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F.R.S. (EDIN.) 





Second Edition published October igos. 
Reprinted with slight corrections March 1908. 







FROM 1823 TO 1883 




IN presenting a reprint of this work, the writer desires 
to acknowledge the appreciative spirit in which the 
first edition was received. He has endeavoured to 
give effect to the kindly criticism which was evoked ; 
and to supply to some extent what was lacking in 
the first essay. It has been a great pleasure to him 
to find that what was a labour of love has been of 
service to the students, and of occasional interest to 
the older members of the banking profession. If the 
present emendation prove as helpful as he is assured 
the original effort has proved, he will be abundantly 



THE substance of the following pages appeared as 
a series of articles in a financial magazine during 
the years 1880-83. These articles are now presented 
in a collected form, after revision and extension, in 
the hope that they may be of service to those who 
are interested in the progress of Scottish banking. 
The author cannot hope that he has escaped making 
errors, but he has taken all possible care, by colla- 
tion of authorities and otherwise, to ascertain the 
correctness of his statements of facts. As to the 
opinions expressed from time to time, he is, of course, 
solely responsible. 

No similar work having, so far as the writer is 
aware, been ever before published, allowance will, 
perhaps, be made for incompleteness and other faults, 
arising from the difficulty of obtaining information. 
Scottish bankers, and financiers generally, have, with 
few exceptions, been slow to record their experiences 



and opinions. Consequently the data from which 
such a work as the present must be constructed exist 
only in a meagre and scattered form. A general 
idea of the sources of information will be obtained 
from the footnotes throughout the volume. 











LINEN COMPANY ...... 62 












THE CRISES OF 1793 AND 1797 ... .- . 137 




MURDER AND ROBBERY . . . . . 168 








1837 209 






CHANGE COMPANIES . . . . .243 













A CRITICAL PERIOD . . . . . . 318 


CONCLUSION . . . -. . . . 328 



B. THE SCOTTISH BANKS IN 1883 AND 1901-2 . .337 





INDEX . 345 


SINCE this Edition was set up, the number of banks of 
issue in Scotland has been reduced, by amalgamations, 
from ten to eight. 

The Caledonian Banking Company, Limited, has been 
absorbed by the Bank of Scotland, who, in that con- 
nection, increased their capital to 1,987,500 subscribed, 
with 1,325,000 paid up. 

The Town and County Bank, Limited, and the North 
of Scotland Bank, Limited, have united their businesses 
as the North of Scotland and Town and County Bank, 
Limited, with a capital of 3,260,000 subscribed, and 
652,000 paid up. 

In each case the authorised note issues were conjoined, 
so that the aggregate note issues of the Scottish banks 
have not been affected. 




THE state of Scotland at the close of the seventeenth 
century the period at which Scottish banking com- 
menced was not favourable to commercial enterprise. 
Foreign and domestic wars and tumults had, from time 
immemorial, drained the country of its hardiest man- 
hood and of its scanty treasure. Commerce, except 
in that minimum proportion which is indispensable to 
the distribution of the necessaries of life, had never 
had opportunity to establish itself. The nation was 
sunk in poverty. Even the few large landowners 
could only be called wealthy in comparison with the 
plain living commonalty, who could with difficulty 
supply their wants. Even the officers of the Crown 
were in the enjoyment of but petty incomes, which 
the evil fortunes of the nation frequently interrupted 
the payment of. The currency was debased in quality 
and scarce in quantity. It would appear that payment 
in kind was usual in the settlement of rents, and it is 



probable that barter in some forms was not uncommon 
in the more remote country districts. The history of 
Scotland as an independent country is one of almost 
constant misfortune ; for even the brilliant victories 
gained by the Scots over their great enemies, the 
English, were but the barriers which averted ruin. 
They did not, like the triumphs of the French or of 
the Spaniards, add new territory to the State, or 
increase the wealth of the kingdom. They merely 
enabled the unconsolidated community to continue its 
rude existence in independence at the cost of chronic 
penury, intensified by internecine feuds and periodic 
coups d'ttdt. Eventually the nation reaped a rich 
reward for the sufferings it had endured in the 
struggle to preserve its freedom, for it gained access 
to boundless fields for the exercise of its restless 
energy, achieved large profits for its untiring activity, 
and became united into one of the most law-abiding 
and industrious countries in the world. At the time 
when our history begins, however, the clouds of night 
were still overshadowing the country ; and the sun of 
prosperity, destined to shine with undimmed splendour, 
had not yet risen on the national horizon. 

The Union of the Crowns of England and Scotland 
in the year 1603, by the accession of James VI. of 
Scotland to the throne of England, put an end to the 
hereditary warfare waged for centuries between the 
kingdoms; but though the wounds were bound up 
they were not healed, and international jealousy and 
dislike still prevented the full advantage of community 
of interests. As being the weaker power, Scotland 
suffered most in this new phase of its struggle with 


its domineering associate, who ever and anon checked 
its enterprise whenever it seemed to trench on English 
prerogatives. It did, however, snatch an uneasy rest 
during the forty years which elapsed before the great 
civil war between the Commons and the Crown broke 
out in 1642. In that six years' struggle, as in all 
the succeeding troubles, the efforts of Scotland were 
generally spent on the losing side. The Scots, indeed, 
escaped the brunt of the conflict, but they suffered 
terribly in the end by the iron hand of Cromwell, 
whose power they had well-nigh crushed at Dunbar, 
but for the infatuation of their clerical dictators pre- 
vailing over the military skill of their sagacious general, 
Leslie. Through the Commonwealth and the restored 
Monarchy, the country's grievances continued ; and it 
was not until the peaceful revolution of 1688 placed 
the constitution on a firm basis, that there was even 
the possibility of prosperity for Scotland; and not 
until the effects of the legislative union of the countries 
in 1707 had had time to develop themselves, that the 
nation's spirit was at rest. 

With the revolution settlement of domestic affairs 
began a new and brighter era in the commercial and 
financial history of Britain, which the warlike foreign 
policy of successive administrations was not potent 
enough to neutralise. England drifted from one 
quarrel into another, and accumulated a national debt 
which at last reached an amount unequalled in the 
world's experience, until, in our days, German ambition 
sought to crush French aggression under the weight 
of financial difficulties. While the national exchequer 
was empty, and irregular methods were adopted to 


replenish it, nay, even as the immediate consequence 
of a system of State lotteries and forced loans, the 
foundation of the great fabric of British finance was 
laid. That it was laid in such unfavourable cir- 
cumstances, established on the erroneous principle of 
monopoly, and fostered by exclusive privileges, granted 
as the price of pecuniary aid to the Crown, has been 
the source of woes unnumbered to the banking system 
of England. But, as far as Scotland was affected by 
it, the influence of the change of dynasty was only 
good. The Highland interest being strongly enlisted 
in favour of the Stuarts, did, it is true, assert itself 
by force of arms ; but this was no new experience, 
and it was soon overcome. The nation, as represented 
by the more consolidated portion of the community, 
was enabled to follow the lead in the organisation of a 
financial system, and, by reason of its independent 
constitution, to found it in a free and untrammelled 

It has been a fortunate circumstance for Scotland 
that, in borrowing the idea of establishing joint-stock 
companies for the advancement of industrial enterprise, 
the Parliament of Scotland avoided the temptations 
yielded to by the Parliament of England, and did not 
seek to fill the national coffers at the expense of the 
future interests of the nation. Banking in England 
has been crippled and enfeebled by the pernicious 
monopolies granted to, and the onerous responsibilities 
imposed upon, its first joint -stock bank; while in 
Scotland the banking system has been developed and 
matured under natural and unfettered conditions. Thus, 
south of the Tweed, banking legislation, in a series of 


makeshift patches, has produced a multiplicity of con- 
flicting interests which have to be subjected periodically 
to readjustment, in order to preserve even partial satis- 
faction among the unequally weighted competitors. 
In the history of banking in Scotland, on the other 
hand, there is comparatively little trace of unequal 
legislative treatment all the banks competing in 
most essential points under similar conditions. What 
unfairness actually exists is due entirely to the 
introduction of English ideas, and is limited, for the 
most part, to the department of note-issuing, as regu- 
lated by the Act of 1845. 

We are not at present discussing the merits of Sir 
Kobert Peel's measures, but we desire to point out 
that they introduced, for the first time, the principles 
of restriction and exclusion in Scottish banking 
legislation. The Scots Parliament of 1695 did, 
indeed, recognise the principle of monopoly, when 
establishing the Bank of Scotland ; but it was under- 
stood (and the result justified the supposition) that 
the exclusive privileges granted to that corporation 
were designed merely to give it a fair chance as an 
entirely new experiment, and were not to be renewed 
at the end of the term of twenty-one years for which 
they were granted. That this special encouragement 
should have been granted was unquestionably wise. 
It would have been unfortunate, if, at that early 
stage, the development of banking had been checked, 
through competition in a field where the probability 
of success, on the part of even one establishment, was 
absolutely uncertain. Had a similar course been 
pursued in England had the exclusive privileges of 


the Bank of England been withdrawn as soon as its 
probation was over, the roll of English bankers would 
have been a much less melancholy catalogue than it 
has proved to be, and the currency question need 
never have occasioned the trouble and vexation which 
have characterised it up to the present time. 

But, unfortunately, the poverty and ambition of 
successive Governments made them the creatures of 
their powerful creditors, and tempted them into 
erroneous principles of legislation, which have pro- 
duced the most artificial financial system existing in 
the world. Through struggles and crises, amend- 
ments have been made which enable the units of the 
system to hang together the inevitable jarring which 
occurs every few years being temporarily overcome by 
some special arrangement, generally involving the 
creation of one or more new species of banks. Thus 
it happens that, at the present time, there are about 
a dozen distinct classes of banks in England, each 
subjected to peculiar legislative provisions. At the 
same time, owing to the operation of the enactments 
limiting the number of partners in private banks, and 
discouraging amalgamations, there has always been an 
unfortunately large number of small establishments 
whose fortunes depend on the prosperity of particular 
localities, and the resources of small coteries, instead 
of having the broader basis of the general experience 
of the nation, and the wealth of large proprietaries. 
This condition has, however, been greatly modified 
during recent years by the numerous amalgama- 
tions which now constitute such great corporations 
as Lloyds Bank (Limited), Barclay and Company 


(Limited), and the London City and Midland Bank 

The Scottish banks, too, show some diversities in 
the legislative conditions under which they exist, for 
which they are indebted to English statesmanship. 
But the national spirit of Scotland has to a large 
extent prevailed over attempts to reduce the uniform 
and matured system, evolved by wholesome experience, 
unfettered by Governmental interference, to the 
hampered condition of the English banking system. 
The inequalities existing viz. the privilege of un- 
designated limitation of liability of stockholders in 
some of the banks, and the disproportion in the 
amounts of authorised issues of notes among the 
several establishments are not such as to interfere 
with free competition between the members of Sir 
Kobert Peel's charmed circle. They are, indeed, 
recognised as grievances, but the banks are content 
to let them lie over. To contrast with the multi- 
plicity of classes of banks in England, there are three 
in Scotland namely, chartered banks, presumed to 
be limited in virtue of the character of their incor- 
poration ; chartered banks, formerly unlimited, now 
limited by registration under the Companies Act 
1879; and banking companies incorporated and 
limited under the Companies Acts 1862-80. As 
the two latter classes are practically the same, there 
are really only two classes of banks in Scotland. 
Under the provisions of the Companies Acts 1862 
to 1879, all essential constitutional distinctions 
disappear as far as the Legislature is concerned, and 
there remains only the partly sentimental injustice 


of enforcing on all but the three oldest banks the 
addition of the invidious and inelegant word "limited" 
where, in point of fact, the distinction is altogether 

The first-mentioned class of banks embraces the 
Bank of Scotland, the Koyal Bank of Scotland, and 
the British Linen Company. The second class includes 
the Commercial Bank of Scotland (Limited), and the 
National Bank of Scotland (Limited). The third class 
consists of the Town and County Bank (Limited), the 
Union Bank of Scotland (Limited), the North of Scot- 
land Bank (Limited), the Clydesdale Bank (Limited), 
and the Caledonian Banking Company (Limited). 
Together these form the roll of the Scottish banks in 
the order of their formation. The Bank of Scotland 
is established under special Acts of Parliament ; the 
other two old chartered banks, and the two senior 
" limited " banks, are incorporated by Eoyal Charter ; 
and the five youngest banks are enrolled under the 
Companies Acts of 1862-80. All of them exercise 
the power of issuing rotes, and carry on business in 
all the departments usually included by British 
economists under the term banking. 

These operations may be classified broadly into 
borrowing, lending, and investment. The companies 
obtain money from their own members to form the 
capital and other private funds of the corporation, 
and from the public under notes payable to bearer on 
demand, deposit receipts, current accounts, letters of 
credit (now generally called drafts), for the remittance 
of money between various localities in the United 
Kingdom and abroad, and circular notes for the use 


of travellers abroad. The money thus obtained is 
lent on the security of bills at a currency (usually 
three to six months after date), cash accounts, over- 
drafts, heritable and personal bonds and other securi- 
ties, to mercantile firms and other customers. It 
is understood that advances by bankers should be on 
tangible and readily convertible security. In this 
connection it should, perhaps, be noted that advances 
are now largely made on what are termed fixed loans 
that is loans, usually of round sums and for fixed 
periods, such as the bi-monthly stock exchange 
accounts, or one, two, or three months on the 
assignation of approved marketable securities, with a 
margin of 20 or 30 per cent to be maintained 
between the amount of the loan and the value of 
the securities at the current market quotations. In 
all cases the banks retain, however, their right to call 
up advances when they consider it advisable to do so. 
The acceptance of bills on account of customers 
has become an important part of banking business. 
A large proportion of the funds is held in reserve as 
cash, investments in first-class Government and other 
stocks, short loans to financial houses, and bills of 
exchange of the most approved description. 

To the efficient carrying on of their business, and 
establishing themselves on broad bases, the Scottish 
banks have spread their branches over Scotland so 
thoroughly that there is no district, with an appreci- 
able nucleus of population, unprovided for. All the 
large banks have, moreover, opened offices in London, 
and the Clydesdale Bank has, in addition, a few 
branches in the north of England. Thus, although 


there are only ten distinct banking establishments 
having their headquarters in Scotland, there are 
nearly 1100 bank offices. The amount of capital 
administered by the banks is more than 138,000,000, 
of which about 17,500,000 consist of the private 
funds of proprietors, 107,000,000 of deposits, and 
8,000,000 of bank notes, the balance of 5,500,000 
being represented by acceptances and drafts. There 
are 24,000 partners, and probably 500,000 depositors, 
of whom more than three-fourths appear to be deposit- 
receipt holders. While, as among themselves, the 
banks carry on a very active competition, their 
dealings with the public are regulated by tariffs 
drawn up in concert, and adjusted from time to time 
by mutual consent. Thus, as regards rates of interest, 
discount, and commission, there is practical uniformity 
throughout the country the discretionary powers in 
these matters being of small extent. As far as terms 
are concerned, therefore, customers have no inducement 
to favour one establishment more than another. Of 
the ten existing banks, five have their head offices in 
Edinburgh, two in Glasgow, two in Aberdeen, and 
one in Inverness. The Edinburgh banks were all 
established before any of the others, and transact 
69J per cent of the entire banking business in 
Scotland. The Glasgow banks conduct 22|- per 
cent, and the provincial banks 7-J- per cent of the 

This, then, is roughly the position of banking in 
Scotland at the present time. It is indeed a mighty 
edifice, built up (as the sequel will show) from a very 
small beginning by shrewdness, economy, and industry 


during the last two hundred and six years. The 
history of banking in Scotland is most intimately 
associated with the national progress from poverty to 
wealth ; and the characteristics of the system of 
banking which have been developed are in many 
points unique, and marked by the peculiar circum- 
stances which have moulded the Scottish character. 
The result of the experiment so modestly attempted 
in 1695 has, despite many and grievous failures, and 
at least one deeper stain than the financial community 
of any other nation has cause to blush for, been a 
great success. In treating of English banking, if we 
have represented it historically in an inferior light, 
we do not mean to gloss over or extenuate the weak- 
nesses displayed, especially during last century, by 
Scottish bankers, nor to deny the glory due to their 
southern brethren for the magnificent financial fabric 
they have reared under conditions which, if com- 
mercially superior, have been legislatively inferior. 
And in regard to scientific exposition and research, 
Scottish bankers cannot bear comparison with the 
financiers of England. English banking, following 
the commercial prosperity of the country, has become 
the most widely extended in its range, and the most 
voluminous in the amount of its transactions, of the 
banking systems of the world. But Scottish banking 
has this peculiar glory, that it has been in large 
measure the means of producing and securing the 
prosperity of the country, which has in turn expanded 
it to the proportions we have described. 

In making such a comparison, it must, however, 
be borne in mind that the political and commercial 


positions of England and Scotland have always been 
widely different ; and that, of course, as a matter of 
cosmopolitan importance, the state of English banking 
is of much greater moment than that of Scottish 
banking. At the same time, the history and opera- 
tions of the Scottish banks have not only great 
interest for the people of Scotland, but vitally affect 
the welfare of the empire and of the world. In the 
words of an able writer on Scottish banking, " The 
banking question, whether discussed in London or 
Paris, always reverts to the history of the Scotch 
banks as a fragment indispensable to the controversy." 1 
Their operations have been so admirably adapted to 
the requirements of the country, and have so effectively 
led its agriculture, manufactures, commerce, and every 
branch of industry to a high state of prosperity, 
without special devotion as is usual in other 
countries to particular departments of business, that 
they are universally looked to as efficient exponents 
of practical banking. 

The existing banks are all public joint -stock 
corporations. For about sixty years there has been 
no private banking firm in Scotland, among the last 
being the famous house of Sir William Forbes, 
J. Hunter & Co., who amalgamated in 1838 with 
the Glasgow Union Bank, afterwards the Union 
Bank of Scotland, although their firm -name con- 
tinued to be used for a few years in connection with 
the Edinburgh business of the bank. The less con- 
spicuous house of Alexander Allan & Co. appeared 

1 The Scotch Banks and System of Issue, Robert Somers, 
Edinburgh, 1873, p. 71, 


in the Edinburgh directories as bankers for about 
twenty years later ; but it would seem that for some 
time previous they had practically ceased the active 
conduct of banking business. With this exception, 
the last private banking firm extant in Scotland 
was Dunlop, Houston, Gemmell, & Co., who carried 
on business as the Greenock Banking Co. until 1843, 
when they amalgamated with the Western Bank of 
Scotland. Shortly before these events, a shock had 
been given to the system of private banking by the 
failure of several firms, and the withdrawal from 
business, on account of losses, of the important firm 
of Eamsays, Bonars, & Co. 

Private banking has, however, been a very im- 
portant element in the history of Scottish banking, 
at least one -half of the establishments formed in the 
country having been on that principle, while several 
others, although nominally joint-stock, may for most 
purposes be included in the category. Considerable, 
and in some cases large, fortunes were made by private 
bankers, but their ultimate success does not seem to 
have been great, as only about half-a-dozen reached 
the stage of amalgamation, the others being either 
sequestrated or wound up. In all, there appear to 
have been at least ninety -five distinct banking 
establishments formed in Scotland up to the year 
1845. Since then no new bank has been formed. 1 
Of that list, thirty -six failed and were wound up, 

1 The Scottish Banking Company (Limited) was formed at Dundee 
about twenty years ago, but as its affairs were not made public, it 
cannot with certainty be included among the banks in Scotland. 
It was wound up a few years later, after an inglorious career. 


ten passed out of existence from unexplained reasons 
in all probability for the most part insolvency six 
retired voluntarily, thirty -three amalgamated with 
other banks, and ten remain in business. 1 

It will thus be seen that the narration on which 
we are about to enter is by no means unchequered 
by sad vicissitudes. Indeed, the operations of the 
Scottish banks have been attended by a large amount 
of mismanagement and recklessness, and have pro- 
duced a full proportion of bankruptcies, entailing 
ruin on partners, and sometimes loss to creditors. 
It is but justice, however, to add, that the cases 
where creditors have suffered severely are compara- 
tively few in number, and are confined entirely to 
the smaller class of offices. The total amount of the 
deficits is in but trifling ratio to the aggregate 
liabilities of the banks. 

1 The North British Bank, an exchange company, and not a bank, 
was sometimes included in the published lists of the banks in Scot- 
land. See post. chap. xx. 



IT is a curious 'fact in the history of Scotland, that 
the first considerable effort at joint-stock enterprise 
made there was at once the most ambitious and the 
most unfortunate, was accompanied by the largest 
amount of patriotic enthusiasm, and was the most 
unsuited to the national circumstances, of any in 
which the nation has been engaged. The fortunes 
of the Company of Scotland Trading to Africa and 
the Indies were for long, and to some extent are 
yet, a sadly-remembered episode in the annals of the 
kingdom. But, grievous as was the blow inflicted 
on the nation by the ruin of their darling Darien 
scheme, and culpable as the English authorities, from 
their Sovereign downwards, were in their conduct 
towards the company, it may be doubted if the 
enterprise possessed in itself the elements necessary 
to success, and if the national enthusiasm did not 
get diverted into an entirely wrong channel. Now 
that the lapse of time permits an unbiassed judgment, 
it appears almost an absurdity that a nation who 
had never been able to secure the blessings of peace 



and prosperity within their own borders should, 
while so much remained to be done at home, have 
tried to imitate their wealthy neighbours in the 
creation of a colonial empire. The amount of capital 
sunk, and the number of human lives lost in that 
deplorable attempt might, if saved and utilised at 
home, have greatly antedated the advent of national 

In fairness, however, to our courageous ancestors, 
it must be admitted that the means of utilising the 
national energies were then in a very deficient state. 
The accessories necessary to the production of com- 
modities on such a scale, and of such quality, as 
successfully to compete with foreign markets, were 
not possessed by the people ; the motive power of 
industry capital was not within their reach. What 
they could do with the limited powers at their com- 
mand they did, toiling at their linen and other 
manufactures, protected by their Parliament's pro- 
hibitions against the use of the superior fabrics of 
foreign nations. But, from the time when they 
got the aid of a banking system and a sufficient 
currency, they made great strides, not without 
stumbles, it is true, yet more rapidly and more 
surely than any other nation before them. 

When the Scottish leaders got personal experience 
of the power of English commerce, and of the in- 
fluence of trading associations in promoting wealth, 
they were not slow to evince a desire to procure 
the same advantages for their native country. The 
troublous times appear, however, to have interfered 
with practical action ; and it was not until late in the 


seventeenth century that the Legislature began syste- 
matically to make special provision for the encourage- 
ment of trade. One of the most important of the 
measures passed was the Act, William and Mary, 1693, 
chapter 32, " for the encouraging of Foreign Trade," in 
which " our Sovereign Lord and Lady, the King and 
Queen's Majesties, Considering how much the Improve- 
ment of Trade concerns the Wealth and Welfare of the 
Kingdom, and that nothing hath been found more 
effectual for the improving and enlarging thereof 
than the Erecting and Encouraging of Companies, 
whereby the same may be carried on by Undertakings 
to the remotest Parts, which it is not possible for 
single Persons to undergo," proceeded to authorise 
the association of merchants and others for com- 
mercial enterprises in all parts of the world " where 
Trade is in Use to be followed," with promise of pro- 
tection and encouragement. 

It would not seem, however, that much practical 
result immediately followed this measure ; but it 
paved the way for two important Acts of the session 
1695, incorporating the commonly -called Darien 
Company, and the Bank of Scotland. The former 
was the product of the fertile genius of William 
Paterson, whose character and abilities have been 
variously estimated. It is evident that he was a man 
of great energy and perseverance, and had powers of 
perception and organisation of a high order. Driven, 
at an early age, from his native Dumfriesshire by 
adverse circumstances, he passed into England and 
engaged in trade, apparently with much success. 
There he took an active and influential part in 



financial and commercial discussions, in which he 
shows that, although not entirely free from the 
erroneous views prevalent at that time on such sub- 
jects, he was very far in advance of his contemporaries. 
He projected the Bank of England, and succeeded, in 
spite of considerable opposition, in getting it estab- 
lished in 1694, and was one of its original directors. 
But, owing to disagreements with his colleagues, he 
did not retain his seat at the board many months, 
and he does not seem subsequently to have taken 
any part in the management of the bank. 

After directing his energies to the establishment 
of an " Orphan Bank " and other schemes, Paterson 
conceived his great project of establishing a colony 
on the Isthmus of Darien for trading purposes. It 
was expected that this colony would become the 
entrepot of the trade of Europe with Asia, as well as 
with the West Indies. In one of his letters to the 
Darien Company, Paterson says : " The time and 
expense of navigation to China, Japan, the spice 
islands, and the far greater parte of the East Indies, 
will be lessened more than half, and the consumption 
of European commodityes and manufactories will soon 
be more than doubled. . . . Thus the door of the 
seas, and the key of the universe, with anything of a 
reasonable management, will enable its proprietors to 
give laws to both oceans, and to become arbitrators 
of the commercial world." l 

At first Paterson endeavoured to launch his project 
in England ; but it was treated with indifference 

1 Memoirs of Great Britain and Ireland^ Dalrymple, London, 
1771-88, vol. iii. p. 93. 


or disfavour by those he consulted. He then went 
to Holland, in the hope that Dutch and Hamburg 
merchants would favour the idea ; but no more success 
attended him there. Eeturning to England, it is said 
that Fletcher of Saltoun " persuaded him to trust the 
fate of his project to his own countrymen alone, and 
to let them have the sole benefit, glory, and danger 
of it." It would seem, however, that although the 
scheme was to be a Scotch one, English and Dutch 
support was still sought, and it was obtained when 
Scotch enthusiasm seemed to promise success. In 
his scheme he appears to have had influential associates 
both in Scotland and London. An Act authorising 
and incorporating a company for carrying out the 
proposal was obtained from the Scots Parliament 
on 26th June 1695. In the words of Paterson's 
biographer, "the original plan was to share the 
hazards of the design, in reasonable proportion, between 
the Scots and the English ; and foreigners were to be 
invited to join them both. . . . The original leaders 
of it, whose names are inserted in the Act, were nine 
[ten] residents in Scotland, with Lord Belhaven and 
the Lord Provost of Edinburgh, Sir Eobert Chiesley, 
at their head ; and eleven residents in London, mer- 
chants, with William Paterson and Thomas Coutts 
at their head. . . . Mr. Paterson is found to be a 
subscriber for 3000, and his servant for 10 O." 1 

The floating of the Indian and African Company 
of Scotland met with great opposition from interested 
parties in London ; its promoters were threatened 

1 William Paterson: His Life and Trials, S. Bannister, Edin- 
burgh, 1858, p. 129. 


with impeachment, and the English, Dutch, and 
Hamburg subscriptions, which had been obtained to 
the extent of 500,000, were withdrawn at the com- 
mand of the king, who was pressed to such action 
by the English Parliament. After in vain seeking 
renewed countenance in Holland, the promoters appealed 
to Scotland alone. The appeal was strikingly success- 
ful. " The frenzy of the Scots nation to sign the 
Solemn League and Covenant never exceeded the 
rapidity with which they ran to subscribe to the 
Darien Company. The nobility, the gentry, the 
merchants, the people, the royal burghs, and most of 
the other public bodies, subscribed." The national 
spirit was raised to a high pitch of enthusiasm by 
the jealous opposition of the English, and by the hope 
of great profit from the adventure. Although at 
that time the country was so poor that its total 
currency did not exceed 800,000 (according to 
authoritative estimates), a capital of 400,000, of 
which more than half was paid up, was eagerly sub- 

Much time was occupied in preparation for the 
departure of the expedition, in the course of which 
Paterson was unfortunate enough to get involved in 
the loss of several thousand pounds of the company's 
money. An investigation at the time cleared his 
personal character, but from that time his influence 
in the enterprise was greatly diminished. From being 
the prospective leader he became a mere supernumerary. 
At last all was ready, and, " on the 26th day of July, 
of the year 1698," says Sir John Dalrymple, "the 
whole city of Edinburgh poured down upon Leith to 


see the colony depart, amidst the tears and prayers 
and praises of relations and friends, and of their 
countrymen. Many seamen and soldiers, whose 
services had been refused, because more had offered 
themselves than were needed, were found hid in the 
ships, and, when ordered ashore, clung to the ropes 
and timbers, imploring [to be allowed] to go, without 
reward, with their countrymen." 

The expedition consisted of five well-armed ships, 
laden with merchandise, and having twelve hundred 
men on board. They arrived at their destination 
with but small loss, and the colony was formally 
established as New Caledonia, with New Edinburgh 
as its chief town. But difficulties and hardships were 
soon encountered, and severely tried the colonists. 
English opposition was carried to so great an extent, 
that the West Indian and American colonies were 
forbidden to sell food to the Scottish expedition, or 
to give them any assistance. Eelying on obtaining 
from the neighbouring colonies such supplies as they 
might need, the Scots had brought with them little 
more than they required for the voyage. They were 
therefore reduced to depend for sustenance on the 
produce of the country, and that was both scanty and 
bad. Disease broke out, and many of the colonists 
died. Divided command among the leaders led to 
serious dissensions, and, encouraged by the openly 
manifested opposition of the English authorities, the 
Spaniards became menacing. Denied any assistance 
from the neighbouring colonies, the adventurers endured 
great miseries, under which their spirit was broken. 
At last, to avoid starvation, they abandoned the colony. 


Eight weeks afterwards a second expedition arrived. 
These suffered as severely as their predecessors, and in 
one respect were even worse circumstanced. Four 
Presbyterian clergymen, who had been entrusted with 
the spiritual oversight, began to lecture and denounce 
them for their sins, continuing their services for hours 
without intermission, relieving each other by turns, 
while their heart-broken and wearied flock sat dumb 
before them. When they had been three months 
in the colony, they were joined by another party. 
Though apparently small in numbers, they brought 
a great accession of strength in the person of the able 
soldier, Colonel Campbell of Finab. The Spaniards 
soon advanced a strong force against the colony both 
by sea and land. Campbell gallantly defeated the 
land force, and maintained a brave defence against 
the ships. After enduring great privations, to which 
many of the colonists succumbed, they were obliged 
to submit. A third expedition, consisting of about 
thirteen hundred men, did not fare better than their 
predecessors, and were forced to abandon the enter- 
prise. After having capitulated to a large Spanish 
force, on honourable terms, the Scots finally evacuated 
the colony in April 1700. Of the original expedition, 
only thirty persons are reported to have returned to 
Scotland ; and, according to an account published in 
1787, "from first to last, two thousand Scotsmen lost 
their lives in this unfortunate adventure." l 

The effects of this catastrophe on the Scottish 
nation were very marked. The great loss of life and 
property which had been sustained was felt through- 
1 History of Edinburgh, Alex. Kincaid, Edinburgh, 1787, p. 284. 


out the land and among all classes, for the movement 
had been a national, not a party one. The people 
might, however, have mourned their dead, and borne 
their pecuniary losses, with that equanimity which 
they had so often displayed on other trying occasions, 
had it not been for the knowledge that their griefs 
were due to the neglect of their Sovereign and the 
jealousy of his English subjects. As it was, their 
vexation broke out in wrath. " Nothing," says Sir 
Walter Scott, "could be heard throughout Scotland 
but the language of grief and of resentment. In- 
demnification, redress, revenge, were demanded by 
every mouth, and each hand seemed ready to vouch 
for the justice of the claim. For many years no such 
universal feeling had occupied the Scottish people." 



IT was in the midst of the experiences described in 
the last chapter that the earliest of Scottish banks 
came into existence, and passed the first few years of 
its career. On the 17th July 1695, three weeks 
after the incorporation of the African and Indian 
Company, the Scots Parliament passed an "Act for 
erecting a Publick Bank," l which, together with six 
other Acts subsequently obtained, forms the constitu- 
tion of the Bank of Scotland. The preamble recites 
how " Our Soveraign Lord, considering how useful a 
Publick Bank may be in this Kingdom, according to 
the custom of other Kingdoms and States; and that 
the same can only be best set forth and managed by 
Persons in Company with a Joynt Stock, sufficiently 
indued with these Powers, and Authorities, and 
Liberties, necessary and usual in such Cases ; Hath 
therefore Allowed, and, with the Advice and Consent 
of the Estates of Parliament, Allows a Joynt Stock, 
amounting to the Sum of Twelve Hundred Thousand 
Pounds [Scots] Money, to be raised by the Company 

1 The quotations are from a print dated 1695. 


hereby Established for the Carrying and Managing of 
a Publick Bank. And further Statutes and Ordains, 
with Advice foresaid, That " certain persons named 
should have power to receive subscriptions from the 
1st November to the 1st January succeeding, and 
that the subscribers " are hereby Declared to be One 
Body Corporat and Politick, by the Name of the 
Governour and Company of the Bank of Scotland." 

After sundry provisions regarding the election of 
office-bearers, and the general management of the 
bank, and other matters, it is enacted that during 
the space of twenty-one years " the Joynt Stock of 
the said Bank continuing in Money, shall be free from 
all Publick Burden to be imposed upon Money," and 
" it shall not be Leasom to any other Persons to enter 
into and set up an distinct Company of Bank within 
this Kingdom, besides these Persons allenarly in 
whose Favours this Act is granted." That the bank 
would issue notes was recognised, without specification 
of powers, by the provision "And sicklike, it is 
hereby Declared, that summar Execution by Horning, 
shall proceed upon Bills or Tickets drawn upon, or 
granted by, or to, and in Favours of this Bank." 

They were debarred from any "other Commerce, 
Traffick, or Trade with the Joynt Stock ... or Profits 
arising therefrae, excepting the Trade of Lending and 
Borrowing Money upon Interest, and Negotiating Bills 
of Exchange allenarly and no other," and from lending 
to or otherwise financially assisting the Crown, except 
where " a Credit of Loan shall happen to be granted 
by Act of Parliament allenarly." The Act concludes 
with the provision " that all Forraigners, who shall 


joyn as Partners of this Bank, shall thereby be and 
become Naturalised Scots -men, to all Intents and 
Purposes whatsoever." 

Among the names mentioned in the Act are several 
which also appear in the African and Indian Com- 
pany's Act ; but there is one notable exception. 
Seven London merchants are included in the list, 
of whom the names of John Holland and Thomas 
Coutts are specially interesting. But William Pater- 
son, the founder of the Bank of England, the foremost 
Scotsman of the time in the domain of finance, he 
who, according to a contemporary poet, could " per- 
suade a nation bred to war to think of trade," is too 
busy leading his countrymen on a will-o'-the-wisp 
chase to interest himself in a matter which far more 
concerned his country's good than all his dreams of 
foreign wealth. He even appears to have viewed the 
banking project with disfavour, but for what reason 
is not apparent. 

To whom the credit for the original idea of a bank 
in Scotland is due seems unascertainable ; but it is 
understood that Mr. John Holland, whose name is 
inserted in the Act, a merchant in London, drew up 
its constitution at the request of several Scotchmen 
resident in London. At the outset, the governor and 
one-half of the directors were elected from among the 
proprietors resident in London, the deputy-governor 
and the other half of the board being chosen from 
among the Scottish proprietors. Mr. Holland was the 
first governor. Subsequently, from want of interest 
in the bank leading to a gradual decrease in the num- 
ber of English proprietors, the practice of electing 


London directors was abandoned. Mr. Wenley says : 
" It would appear that Mr. Holland's Scotch bank 
had not found much favour with his English friends; 
but there can be no doubt that, under his care, it had 
been judiciously planted, and had fairly taken root." l 
Although, as we have seen, the Bank of Scotland 
got its credentials on 17th July 1695, it was not 
until the new year that the share-subscriptions were 
completed, and the bank actually commenced busi- 
ness. The capital was subscribed for in the pro- 
portions of two-thirds in Scotland and one-third in 
London. The payments on application for stock, 
amounting to 10,000 sterling, or 10 per cent of the 
subscribed capital, sufficed for the bank's require- 
ments. They began at once to issue notes of 100, 
50, 20, 10, and 5 sterling; and in 1704 they 
adopted a 12 Scots (value 1 sterling) denomination. 
It is somewhat extraordinary that, at the outset, the 
notes should not only have been in English currency, 
but of such high denominations. The number of 
people who could have had use for the larger of these 
amounts must have been very small; and even 5 
would be an unattainable sum for most of the popula- 
tion. The explanation is, doubtless, as suggested in 
the letter referred to below, 2 that the bank was 

1 Journal of Institute of Bankers, vol. iii. p. 121. 

2 It is stated in the Historical Account that, in January 1699, they 
adopted a 20s. issue. The author subsequently, however, enumerates 
only the first five denominations as current in 1700 ; and his state- 
ment is otherwise unconfirmed. That it is probably an error is 
apparent from an interesting official letter printed in Appendix A. 
The notes, we are told, were then "engraven in one and the same 
character, only the amounts being different." 


dominated by the views of people accustomed to the 
conditions of business in London. Hence also the 
hesitation of the bank, until 1704, to issue small 
notes, which were essential to the efficiency of the 

At first the lending of their capital and the issue of 
notes constituted the whole of their business, but very 
soon they attempted to engage in exchange business, for 
we find that in this first year of their active existence 
(1696) they established branches at Glasgow, Aber- 
deen, Dundee, and Montrose. It is possible that the 
immediate cause of this movement was an attempt 
made by the African and Indian Company to engage 
in the business of banking, as a set-off to their 
failure in Darien, and the unremunerative nature of 
their other commercial ventures. This action was, of 
course, a direct infringement of the legal monopoly of 
the bank, justifiable only by a literal interpretation 
of the prohibitory clause of the bank's Act, which 
forbade the setting up of "a distinct company of 
bank." Not feeling themselves strong enough, how- 
ever, to contest the point, the bank allowed their 
opponents to carry on their competition undisturbed ; 
and very soon it was found that the latter were as 
unable to command success in banking as in their 
legitimate business, and they retired from the field. 
" They resolved," says our author, " not to quarrel with 
that (then) Mighty Company, nor plead the Bank's 
seclusive Privilege ; but rather to ly by for a little, 
and only so to manage their Affairs, as not to suffer an 
Affront in their Infancy, by a Demand on the Bank 
greater than the Amount of their Cash : And this 


they did effectually, but with some Loss to the Com- 
pany ; for it obliged the Proprietors to advance two 
Tenths of their Stock, besides the Tenth paid in at 
subscribing, and put a stop to all Negotiations for a 
Time " (p. 4). In the year succeeding the establish- 
ment of the bank's branches, the directors, finding 1 
that the expense of conducting them greatly exceeded 
the profit obtained, withdrew them, and the attempt 
was not renewed during the currency of their mono- 
poly. To meet their extended operations they had 
increased the paid-up capital to 30,000 ; but when 
they again confined their business to Edinburgh, it 
was reduced (May 1698) to the former amount by 
repayment of 20,000 to the proprietors. 

In February of the year 1700, they had the mis- 
fortune to be burned out of their office, which was 
situated in Parliament Close, but, while the event 
occasioned alarm and inconvenience at the time, they 
do not seem to have sustained much injury therefrom. 
It was not long, however, before their affairs assumed 
a grave aspect. The issue of notes had doubtless 
proved a great boon to the public, as well as a source 
of profit to the bank, but the use of them was not at 
this time so general as it afterwards became. As an 
addition to the currency they were acceptable ; but 
coin was still the recognised medium. In 1704 a 
scarcity of coin, occasioned by a persistent drain of 
bullion (probably to meet the foreign payments of 
England in connection with the wars under Marl- 
borough, who gained his great victory over the French 
at Blenheim in August of this year), began to be 

1 Parliamentary Report, 1841. 


severely felt. A rumour " that the Privy Council was 
to cry up the value of species," as it was quaintly 
termed, brought matters to a crisis with the bank. 
In the words of an official print, dated 28th Decem- 
ber 1704, and styled a "Memorial and Intimation 
from the Governour and Coy. of the Bank of Scot- 
land," these circumstances "occasioned a very great, 
unexpected, and unaccustomed demand upon the bank, 
which at last had such effect, that on Munday the 
18th of this instant December the money in the Bank 
was wholly exhausted, and thereby payments stopt." 
Thus, in language contrasting strangely with the 
euphonious circulars in which firms now announce their 
inability to meet the demands of creditors, did the 
directors of the Bank of Scotland intimate that they 
had suspended payment. 

Confident, however, in the perfect solvency of the 
corporation, they proceeded to state that application 
had been made to the Marquis of Tweeddale, the Lord 
High Chancellor, craving an inspection of the books. 
Thereupon the Earl of Loudoun, Lord Belhaven, the 
Lord President of the Court of Session, and others, 
met at the bank, and after examination they " find 
that the Bank hath sufficient Provisions to satisfie and 
pay all their outstanding Bills and Debts ; and that 
with a considerable Overplus, exceeding (by a fourth 
part at least) the whole foresaid Bills and Debts." A 
general meeting of the adventurers was called, who 
sanctioned the allowing of " annual rent " on the notes 
" from the stop," to procure their continued currency, 
and made a call of 10 per cent on the nominal 
capital, amounting to 10,000. This sum was repaid 


two years later. With these arrangements the diffi- 
culty was overcome, and the bank learnt its first 
lesson in the absolute necessity of maintaining an 
efficient bullion reserve. It had probably been loth 
to supplement its falling stock, owing to the great 
expense attending such an operation. This will be 
readily understood, when it is remembered that the 
cost of bringing gold from London amounted then to 
8 per cent or 9 per cent on the remittance. The 
year 1704 is further noticeable, from the first step in 
the establishment of the small-note currency, which 
subsequently proved such an important factor, having 
been taken, by the bank then commencing the issue 
of notes of the value of 1 sterling. Their circulation 
was, however, very limited until after the union of the 

Three years after the incident we have just 
narrated (1st May 1707), the legislative union of 
England and Scotland was accomplished, after pro- 
tracted and acrimonious negotiation. That event is 
now regarded as a mutual blessing to both nations ; 
but it was not generally so considered at the time. 
Haughty and contemptuous, the English looked on it 
as a means of staving off the troublesome incursions 
of the northern wolves. The Scotch, on the other 
hand, detested the proposition, and but for intrigue 
and bribery among the members of Parliament, the 
Act of Union would not have passed. The people 
were not, however, long in finding out the material 
benefits accruing to them from federal union with 
their wealthy neighbours, and from that time Scot- 
land rapidly advanced in civilisation and commerce. 


The national coinage being then in a very unsatis- 
factory condition, the Bank of Scotland was entrusted 
with the duty of superintending its improvement. 
" The Directors undertook to receive in all the Species 
that were to be recoined, . . . and to issue Bank-notes 
or current Money for the same, in the Option of the 
Ingiver of the old Species, and the Privy Council 
allowed a Half per Cent, to the Bank for defraying 
Charges." The bank were promised a reward after 
finishing the work ; but, although they preferred their 
claim, they do not seem to have secured its recogni- 
tion. 1 The total metallic currency of Scotland at that 
time has been estimated at 800,000, or, according to 
one authority, 900,000. Of this, 411,117 : 10 : 9 
was brought in, in exchange for new coin. It is 
interesting to note that only 239,636:13:9 was 
native coin, the rest consisting of 132,080 : 17s. of 
foreign and about 40,000 English coin. This 
operation took place in 1707. 

While this reform was in progress, the bank got a 
great fright; "For in March 1708 the French Fleet 
appeared at the mouth of the Firth of Forth, in the 
(then) intended Invasion. At which time the Bank 
had a very great Sum lying in the Mint in Ingots, 
and a considerable Sum in the Bank, brought in to be 
recoined, besides a large Sum in current Species ; all 
which could not well have been carried off and con- 
cealed." 2 In 1707 the bank first assumed the role of 
a bank of deposit, but did not then allow interest on 
the money paid in. During the Jacobite troubles of 

1 Historical Account of the Bank of Scotland, 1728. 
2 Ibid, 


1715 the bank, being suspected of favouring the 
Pretender's cause, fell into disfavour with the Crown. 
To this is ascribed the favourable reception, some 
years afterwards, of the request by the Equivalent 
Company to have banking powers conferred on them, 
and the special recognition and support accorded to 
them for long afterwards as the great rival of the 
Bank of Scotland. 

It does not concern us to trace the course of the 
rebellion, which, indeed, does not seem materially to 
have affected the country in general. But it is 
interesting to observe its effects on the bank. That 
establishment, despite the insignificance of its financial 
position from a modern point of view, appears to have 
been a considerable power in the land. It would 
appear that its influence was (doubtless secretly) 
enlisted more in the cause of popular patriotism 
(according to the light of those days) than in the 
interest of public order and loyalty, as these were 
regarded by the dominant party. For this disaffec- 
tion to King George the bank was severely punished 
twelve years later ; and even at the time it suffered 
from the results of the rebels' action. The Town 
Council of Edinburgh made successful endeavours to 
provide for the security of the city ; but the approach 
of a detachment of the Pretender's party produced so 
much alarm among the citizens, that a severe run on 
the bank took place. It is recorded that "the 
enterprise began on the part of the rebels with an 
unsuccessful attempt to seize the Castle by surprise ; 
and the run on the Bank of Scotland was so great, 
that they stopped payment on the 19th September 



[having apparently sustained it for eleven days], and 
ordered their notes to bear interest from that date." 
Elsewhere, however, we are informed that " the 
Directors privately encouraged the Demand, lest the 
Money should fall into the Hands of Enemies. But 
the Directors took Care to retain the whole Cash 
belonging to the Government ; and after all the rest 
of the Money in the Bank was issued, they delivered 
the publick Money ; which was lodged in the Castle of 
Edinburgh, being about 30,000 Sterl." Tranquil- 
lity was restored by the arrival of troops from Holland 
in December following. The interest -bearing notes 
were withdrawn from circulation during May, June, 
and July 1 7 1 6, " and the Directors proceeded again 
in Business and Negotiations." 1 

In that year, as the result in all probability of the 
interruption of its business, it does not appear to have 
paid any dividend. As this was quite an unusual 
circumstance, even in those early days of the bank's 
history (as far as we are aware it occurred only once 
before and never after), and as, when dividends were 
resumed, they were at lower rates than those immedi- 
ately preceding the cessation, it would seem that the 
bank had suffered considerably from the untoward 
train of events. The proprietors could, nevertheless, 
afford to dispense with a year's dividend, seeing their 
profits had been of a very substantial character. 
From an apparently authentic record we find that, for 
the twenty-nine years ending with 1727 (the date of 
the incorporation of the Eoyal Bank), the allocated 
profits averaged 17 per cent on the capital. After 

1 Historical Account. 


the first stoppage (1*704) the rate fell to 6 per cent, 
but it was rapidly raised again until it reached 30 
per cent, at which it stood for three years prior to 
the second suspension (1715-16). In the succeeding 
eleven years the rate varied from 10 per cent to 22^ 
per cent, and the bank enjoyed an undisturbed and 
lucrative monopoly. Its exclusive privileges had 
lapsed in 1716, but no competitor had arisen to con- 
test its sway in the domain of finance. Indeed, there 
are indications that in those days an opinion pre- 
vailed pretty generally that, while one bank was 
necessary, a plurality of banks was unadvisable and 
even dangerous. The great South Sea Bubble and 
the other speculative manias which in 1719-20 
grievously afflicted the English nation, appear to 
have had little effect on Scotland. 

The prosperity of the Bank of Scotland did not 
pass unobserved. Although up to 1726 no actual 
competition, other than the ineffectual attempt made 
by the Darien Company, seems to have been threatened, 
endeavours were made by other corporations to share 
their gains. One of the most curious of these was a 
scheme submitted by a Mr. James Armour, writer in 
Edinburgh, acting on behalf of the Eoyal Exchange 
Assurance Corporation of London. In advancing his 
scheme, Mr. Armour lays great stress on the benefit 
to be derived by the country from its acceptance ; but 
it is evident from his tone that he had some strong 
personal interest in the success of his proposals. 
Seemingly the bank directors had turned a deaf ear 
to his charming, for he issued a print of 25 pages, 
with the object of forcing the scheme upon their 


attention, and enlisting the support of the proprietors. 
This pamphlet is entitled, " Proposals for making the 
Bank of Scotland more Useful and Profitable, and 
for raising the Value of the Land-Interest of North 
Britain; Edinburgh, 1*722." It is dedicated to the 
Earl of Leven, Governor of the Bank, "to whom," 
says the author, " I'm perswaded, what is offered with 
a View to serve your COUNTRY and the BANK-COMPANY, 
will not be unacceptable." He then addresses the 
reader in the following words : " Being commissioned 
by some very Honourable Gentlemen, as a COMMITTEE 
COMPANY at LONDON, to offer the following PRO- 
POSALS to the GOVEENOE and COMPANY of the 
BANK of SCOTLAND, which, in my humble Opinion, 
are for the Interest, not only of the BANK-COMPANY, 
but also of the whole NATION, I think myself obliged 
to submit THEM to the consideration of every one 
who will take the Trouble to examine 'EM, and has 
Eesolution enough to judge for himself. Tis in vain 
to write for him, who, for Want of this Eesolution, 
submits himself and his Concerns to another's Conduct, 
without enquiring into the Eeasons of Things, such 
a one may save himself the Trouble of examining 
these Proposals, and leave it for a Task to his DIRECTOR." 
He then devotes sixteen pages (in which a peculiar 
taste in printing is gratified to the full by the liberal 
use of large and small capitals, italics, and old English 
characters) to the statement and advocacy of his 
proposals. He opens with a reference to "The bad 
Effects of the Scarcity of Money, and a sunk Credit ' 
then existing ; and continues, " 'Twill be needless foi 


me to offer to set forth the Advantages of a Plentg of 
JHonej, and an fXtettStfa Cre&it, establish'd on a 
solid Foundation, tijOSe being obvious to every Man of 
common Understanding. 

" Nor need I endeavour to prove what every one 
will readily admit, that ILattlf is by much the surest 
JlltltJ of (itSfcit, by reason that it is not only capable 
of being so Ascertain'd, as that it mayn't be alienated, 
to the Disappointment of those who trust to it ; but 
also that it is more like to retain its Value, than any 
other Fund" This is the basis of his argument ; and 
he goes on to show that " The Fluctuation that lately 
happen'd of the Value of Land, . . . reckoning it 
after the Kate of Twenty Years' Purchase," had pro- 
duced no real depreciation ; " so that the iLatltl^ 
(HtStltt did not suffer so much as a Damp even under 
that Fluctuation" 

The author then proceeds to state his case, and it 
may be most pleasing to the reader to have it in his 
own language in full. " Perhaps no Country in the 
World affords a better Opportunity for a Land Credit, 
than THIS of NORTH BRITAIN does, in Proportion to 
our Extent, not only by Keason that our iUgiStrs 
are sufficient to ascertain the Property of Land, but 
also that we have already the Privilege of a BANK, 
empower'd expressly to lend upon it. 

"'Tis true, That, for a long Time past, this Bank 
hath been but very scanty in her ILoattS upon Land, 
or upon any other Security ; but whatever may have 
been the Motives of this Conduct for Time past, it is 
reasonable to think, That was the BANK strengthened 
with a greater Quantity of Cash, than she hath 


hitherto been provided with, and for which no im- 
mediate Demand could be made upon her, she might 
safely issue Notes in Loans upon Land and other 
proper Securities, to a much greater Amount than she 
hath done at any Time heretofore ; and that not only 
for the Advantage of the Bank Proprietors, but also 
of the whole Nation. 

" To enable our BANK to this, a Committee of the 
Directors of the Eoyal Exchange Assurance Company, 
authoriz'd to that Effect, have empower'd me to PRO- 
POSE, That this Company will furnish the BANK of 
Scotland with 20,000 st. in specie; upon this Con- 
dition, That after allowing the Bank Proprietors a 
Dividend of 2500 Sterling per Annum of free Profits, 
upon the 20,000 Sterling already paid in by them 
of their CAPITAL, the SujJerplllS profits arising from 
the Interest of the ILoatTjS, shall be equally divided 
betwixt the Two Companies. 

" The Committee of Directors of the aforsaid 
Assurance Company, being also perswaded that the 

Settling of an Intercourse of (Exchange betwixt the 

Two Companies would not only conduce to the Good 
of the Companies, but of the whole Nation; and 
considering that it will be for the Interest of that 
Company upon the Footing propos'd, that the Credit 
of our Bank be established beyond Exception, they 
have also instructed me to offer it as their Opinion, 
That the Assurance Company shall honour and pay 
from Time to Time, UtllS Of XCfjange, to be drawn 
by the Bank upon that Company to the Amount of 
5000 Sterling, our Bank being only to answer that 


Company's Draughts to the Amount of what they 
shall have advanced and paid on the Bank's Bills for 
the Time. . . . 

" Tho' 'tis evedint that thus the Business of Exchange 
is to be carried on with the Assurance Company's 
Money, yet 'tis propos'd, That the Bank shall have 
SJalf tJ}0 profits of what Exchange shall be got by 
these Bills to be drawn by both Companies, without 
risquing or advancing tte JattJjtNg*" 

The deposit of 20,000 was to lie for a period of 
nineteen years, with option to the Assurance Company 
to demand repayment on twelve months' notice, but 
with no option to the bank to repay of their own 
accord. As the bank had been paying dividends of 
20 per cent on the first instalment of 10,000 of their 
capital, and of 5 per cent on the second instalment of 
the same amount, the sum of free profits specified was 
to preserve that position. Further profits, including 
those to be derived from the use of the Assurance 
Company's money, were to be divided equally between 
the bank and the company. The exchange business 
was to be kept separate, one per cent commission to 
be charged, drafts to be payable at sight, each party 
to pay their own expenses, and the profit to be 
divided equally. 

Our author seems to have had doubts as to the 
acceptance of his scheme, for, towards the end of his 
pamphlet, he expresses himself thus gloomily and 
sarcastically : " I know that very often the most use- 
ful Proposals " [he has long before this exhausted his 
stock of special types] " have been treated with the 
greatest Contempt; but a Man that has any Share 


of good Sense, must perceive how absurd this conduct 
is. If the World had been always averse to new 
Discoveries, we had been still as Barbarous as the 
most ignorant of our Ancestors" [a most profound 
depth surely], "and sure, one can't read the Proposals 
now offer'd with any Degree of Attention, but he 
must be ready to think, they will be Accepted with 
Pleasure, unless" [here comes the sting] "this is 
sufficient to Reject them that they are made feasible, 
and for the pullick Good" 




WE now come to the period when the history of 
banking in Scotland begins to assume a general 
character. Hitherto the progress of one establish- 
ment has been all we have had to chronicle ; but, 
from the time when, in 1727, the monopoly of the 
Bank of Scotland ceased, the number of banking 
houses rapidly increased. The record of dividends 
paid by the Bank of Scotland, to which we have 
already referred, bears patent evidence to the effects 
of the change. The first blow to the exclusive reign 
of the Old Bank (as it came to be called) was the 
incorporation of the Eoyal Bank of Scotland. The 
competition thus brought into play must have been 
of a very serious kind. The Bank of Scotland had the 
prestige of thirty-two years of remarkable prosperity ; 
but its rival had the power of superior resources, and 
was backed by the special favour of the Crown. This 
latter circumstance was no direct loss to the Old Bank, 
as it had never experienced benefits of that descrip- 
tion ; but the disfavour which its Jacobite proclivities 



had entailed on it, was calculated to handicap it 
severely in the contest which now commenced. 

In 1*727 the Bank of Scotland paid a dividend of 
22ijr per cent; in the succeeding year during which 
the Koyal Bank carried on business it paid 13 J per 
cent; in 1729 the rate was only 3f- per cent; and 
during the succeeding fourteen years, ending with 
1743, the average rate of dividend hardly exceeded 
5 per cent. The contrast thus afforded with its 
previous experience speaks as graphically as any 
detailed account could (even were that to be had) of 
the seriously changed position of the Bank of Scot- 
land, when it had to encounter the rivalry of other 
establishments. It did, indeed, in after years pay 
occasional exceptionally large dividends, and its in- 
creases of capital are understood to have been made 
largely from accumulated profits ; but there is reason 
to believe that these arose mainly, if not entirely, 
from special gains on what would now be considered 
speculative transactions, but which in the olden days 
of banking were deemed an important and legitimate 
department of the banker's business. Its ordinary 
banking profits must have been very largely encroached 
upon by the operation of competition, and this effect 
was much aggravated by the violent and expensive 
efforts it made to maintain its right to monopolise 
banking business. 

In order to describe the origin of the Eoyal Bank 
of Scotland, it is necessary to go back to the time of 
the union of the countries. By the fifteenth article 
of the Treaty of Union it was stipulated that, as the 
customs and excises to be levied in Scotland would be 


proportionately applicable to the debts of England, a 
Bum of 398,085: 10s., together with a proportion 
of the prospective increase of Scotch revenue to be 
realised in after years, should be paid by England, 
and devoted to the following purposes, viz. 1st, To 
reimburse private persons for losses incurred in con- 
nection with the recoinage of the Scots currency ; 
2nd, to repay the capital of the African and Indian 
Company (which was then to be dissolved) with 5 per 
cent interest per annum; 3rd, to pay the public 
debts of Scotland (which seem to have consisted 
entirely of arrears of salaries, pay, etc., and not of 
borrowed money); 4th, the payment of 2000 per 
annum for seven years towards the encouragement 
of woollen manufactures ; and 5th, the payment of a 
like sum in after years for the encouragement of the 
fisheries and other industries. A Board of Com- 
missioners of the Equivalent, of whom the Board of 
Trustees for Manufactures appear to be the modern 
representatives, was appointed to superintend these 
arrangements. The lion's share went to the Darien 
Company, whose capital amounted to232,884:5:0f. 
It does not appear in what way the money was 
raised ; but, as it is improbable that the English 
Exchequer had free funds in hand to meet the charge, 
it may be presumed either that loans were obtained 
from private parties, or that a part of the sum due 
(perhaps the Darien Company's capital) was allowed 
to lie as debt owing. The latter supposition seems 
the more probable one. 

It is stated that great delay occurred in the settle- 
ment of claims, the Government issuing debentures 


of 50 each to the creditors, but making no provision 
for their redemption or for payment of interest on 
them. However, an Act was passed in 1719, being 
the fifth year of the reign of George I., settling the 
Equivalent as matters then stood, by which the 
proprietors of the debts were incorporated into a 
company called the Equivalent Company, with a 
capital of 248,550: : 9 J. This sum consisted 
of 230,308 : 9 : lOf, due to general creditors, and 
of 18,241: 10: lOf, allowed to William Paterson 
as indemnification for his losses and services in 
connection with the Darien scheme. Whether or 
not Paterson lived to realise his good fortune is 
uncertain, as he died in the same year, but it would 
undoubtedly form part of his estate. The Equivalent 
Company was allowed an annuity of 10,000, until 
redemption of the principal, as interest, and 600 a 
year for salaries and expenses. 

The company seems very early to have entertained 
the temptation to make further profits. The great 
prosperity of the Bank of Scotland dazzled them and 
others. Mr. Fleming states l " that in December, 
1719, an overture of union was made to the Bank 
of Scotland by the Equivalent Proprietors; another in 
the following year by the Edinburgh Society ; 2 and 
a third in 1721 by the Koyal Exchange Assurance 
Corporation of London. But the directors resisted 

1 Scottish Banking: A Historical Sketch, James Simpson 
Fleming, Edinburgh, 1877, p. 12. 

2 For insuring houses against loss by fire. Its business was 
ruined by the establishment of the Friendly Society, a mutual 
office ; and, soon afterwards, it was dissolved under the Bubble 


all their wiles. They said in substance, we have a 
very profitable concern, we have as much money as 
we require to sustain our credit, and when more is 
wanted, our own proprietors will find it." Although 
the Equivalent Company failed in this attempt, they 
did not give up thought of gratifying their desire to 
share in the profits of banking. When they com- 
menced to agitate for an extension of their powers, 
so as to enable them to do banking business on their 
own account, we cannot say; but, on 31st May 
1727, a charter was granted to such of their number 
as chose to subscribe their stock into a new company, 
whereby they were incorporated as The Royal Bank 
of Scotland. Nine days after the date of the charter, 
and before it had passed the Great Seal of Scotland, 
the King, George I., died. The grant was thus in 
danger of lapsing ; and the Old Bank made vigorous 
efforts to secure this result. Under sign manual of 
the new King, however, the seal was duly appended on 
8th July. That, and seven charters granted in after 
years, and an Act of Parliament passed in 1873, form 
the constitution of the Bank. 

The original charter of the Royal Bank of Scotland 
states that " Our Sovereign Lord, considering, That by 
an Act of Parliament made and passed in the fifth 
year of His Majesty's reign, entitled, An Act for 
settling certain yearly funds, payable out of the 
Revenues of Scotland, to satisfy public debts in 
Scotland, and other uses mentioned in the Treaty of 
Union ; and to discharge the Equivalents claimed on 
behalf of Scotland, in terms of the same Treaty ; and 
for obviating all future disputes, charges, and expences 


concerning these Equivalents," certain enactments had 
been made regarding the incorporation of the Equiva- 
lent Company, and " His Majesty did thereby for 
himself, his heirs, and successors, covenant, grant, and 
agree to and with the said Corporation or Body 
Politic, and their successors, that he, his heirs, and 
successors, should, from time to time, and at all times 
thereafter, upon the humble suit and request of the 
said Corporation or Body Politic, and their successors, 
give and grant unto them all such further and other 
powers, privileges, and authorities, matters, and things, 
for rendering more effectual their said grant, [of 
revenues and privileges], according to the true intent 
and meaning of the said Act, and of the said grant, 
which he could or might lawfully grant, . . . And 
considering that the said Corporation have, by their 
most humble application to His Majesty, requested, 
That he would be graciously pleased, by letters patent 
under the Great Seal of Scotland, to enable such of 
the Proprietors of the said Corporation as should 
subscribe their stock for that purpose, to have the 
power of Banking in Scotland only, with liberty to 
borrow and lend upon security there, . . . and that 
such power of Banking so established, would materially 
tend to the great benefit and advantage of that part 
of his kingdom ; . . . . therefore His Majesty, in 
compliance with the said request, and by virtue of 
his prerogative royal, and of his especial grace, certain 
knowledge, and mere motion, and for the benefit of 
his subjects in that part of his United Kingdoms, 
ordains a Charter to be made and passed under the 
Seal appointed by the Treaty of Union, in place of 


the great seal thereof, nominating" thirteen persons 
named, to receive subscriptions of stock, on or before 
29th September 1727, and constituting the subscribers 
" one Body Politic and Corporate of themselves, in 
deed and name, by the name of The Koyal Bank of 
Scotland," and to have perpetual succession, etc. 

Among the specified powers granted are the 
" lending of money as they shall see fit, at any 
interest not exceeding lawful interest, on real or 
personal security, and particularly on pledges of any 
kind whatsoever, of any goods, wares, merchandises, or 
other effects whatsoever, and that the said company 
may keep the money or cash of any person or persons, 
and may borrow, owe, or take up in Scotland, on their 
bills or notes payable on demand, any sum or sums of 
money whatsoever." The Company was prohibited 
from trading in buying or selling wares of any sort, 
allowance being made to deal in bills of exchange, 
bullion, etc., and to dispose of goods lodged in security 
for advances, unredeemed lands purchased, etc. Volu- 
minous regulations follow, which it is unnecessary to 
specify. Power is given to the General Courts of 
Proprietors to make calls, not exceeding 50 per cent 
in all, over and above the subscribed stock, " as to the 
majority of the Members in their General Courts 
shall seem proper, and so as not above ten pounds 
upon every hundred pounds of stock be called at one 

This point is specially interesting from the fact that 
it has, in a recent able treatise on Scottish Banking, 1 

1 Our Scotch Banks, Wm. Mitchell, S.S.C., 3rd edition, 1879, 
page 81. 


been construed to imply direct liability of the pro- 
prietors for a further sum than the now fully paid-up 
capital. The question is one which might afford good 
opportunity for legal fencing in a Court of Law ; but 
there are two weighty objections to the theory which 
Mr. Mitchell has put forward. The first is that the 
enactment appears to have been a purely optional one, 
at the discretion of the bank itself, being inserted in 
the charter because, the capital consisting entirely of 
stock of the Equivalent Company, the bank would, 
without such power, have been destitute of ready 
money other than what might be supplied by customers. 
The second objection is, that as the provision was not 
renewed in any charter subsequent to the first most 
of the charters being complete in themselves, and not 
mere additions, but absolute renewals of privileges on 
slightly different bases it may be held to have been 
abrogated. But, even if it be held that it was not 
abrogated, it could only apply to that portion of the 
capital stock which was created by the charter in 
which the provision was inserted. As that original 
capital has, in all probability, changed hands, been 
sub-divided, and intermixed with later created portions 
of the capital, the attachment of liability would now 
be practically impossible. In any case, the total 
extent of the liability would only be about 55,000, 
subject to deduction of certain sums which had been 
called in exercise of the privilege. 

We have treated thus fully perhaps tiresornely 
so of the charter of the Eoyal Bank, because of its 
unique character. There are three other chartered 
banks (excepting the Bank of Scotland, which, 


although popularly called "chartered," is strictly a 
Parliamentary Corporation), but none of their charters 
has the same historical value or antiquarian interest, 
although they may be more readable, on account of 
the smaller amount of verbosity and pedantic iteration 
they display. As a specimen of contemporaneous 
legal composition, it is somewhat of a curiosity, both 
from its redundant modes of expression and the simple 
clearness of its language. And above all, it is a most 
important element in the history of Scottish banking. 



IT was not without a severe struggle that the 
Bank of Scotland submitted to the encroachment on 
its hitherto undisturbed monopoly by the Eoyal Bank. 
Most strenuous efforts were made to prevent the grant 
of a charter, influence being made with persons of 
position in London, and, according to one authority, 
even bribery being resorted to. It is much to be 
regretted that the early history of Scottish banking 
should not have found efficient contemporaneous 
chroniclers. As it is, we have the merest glimpses 
into the progress of the banks even up to com- 
paratively recent times. Were it not for Sir William 
Forbes' most interesting and valuable memoir, which 
the well-known firm of W. & K. Chambers brought to 
light twenty years ago, we would have only a skeleton 
to study; and as it is, that record is mainly confined 
to the development of one bank and that a private 
establishment and only reaches back to within a few 
years of the period we are dealing with. There are 
two small works, however, of which a few copies are 
still extant, one of which is in the library of the 


Writers to the Signet, and from which Mr. Fleming 
gives some interesting extracts and details of this 
period. They were both published in 1728. The 
first is An Historical Account of the Establishment, 
Progress, and State of the Bank of Scotland, and of 
the several attempts that have been made against it, and 
the several interruptions and inconveniences which the 
Company has encountered. The second is a Letter 
containing Remarks on the Historical Account of the 
Old Bank. These are, so far as we know, the only 
publications by contemporary writers which treat 
specifically of this all-important crisis in our banking 
history, and they deserve to be better known than 
they are at present. 

All the efforts of the Old Bank to frustrate the 
advent of its rival were of no avail. On the 31st 
May 1727, an incorporating charter was granted to the 
petitioning Equivalent Proprietors, and within the pre- 
scribed time stock to the amount of 1 1 1,347: 19 : 10 T % 
sterling was transferred as the capital of the 
new bank. As we saw in our last chapter, the 
charter gave power to the proprietors to assess the 
fully-paid stock to an extent not exceeding 5 per cent. 
Without this power the company would have been 
placed in an awkward predicament, as, although they 
had a paid-up capital greatly in excess of that of the 
Bank of Scotland, it was unavailable for banking 
purposes, being entirely in the form of Government 
debt. In order to enable them to proceed to business, 
they made calls in December, 1727, and February, 
1728, amounting together to 20 per cent on the 
capital. At the former of these dates they appear to 


have opened their office, their first notes being dated 
8th December 1727. A remittance of 20,000 in 
connection with the provisions of the Treaty of Union 
anent the encouragement of manufactures, to which 
we have already referred, seems to have been the 
occasion of special strife between the banks. As 
descriptive of the struggle, we cannot do better than 
quote Mr. Fleming's words ; 

" Then came the tug of war. The Old Bank and 
the New are now face to face, each with its hot 
partisans eager for the fray. I fear not a few hard 
blows were struck in those early months of 1728. 
And yet, what monopolist ever patiently submitted to 
the surrender of his privilege, or saw either reason or 
public advantage in its sacrifice ? And do we ever 
see, even in our enlightened days, the new institution 
welcomed into cordial brotherhood with the old, until 
it has not merely deserved but commanded respect ? 
So it was with our two banks. The Old was jealous 
and resentful ; the New was aggressive and defiant. 
Peace was hopeless until they had tried each other's 
strength. The struggle was short and sharp. The 
New Bank established its footing, and the Old had 
for a time to succumb under the pressure of its rival's 
demands. The warfare culminated in the use by the 
New Bank of the legal engines of horning, inhibition, 
and arrestment, in the course of which Andrew 
Cochran, the Lord Provost of Glasgow, of whom we 
shall hear more, appeared on the stage. The Court 
of Session evidently thought that legal diligence was 
being run rather hard, and stretched a point. The 
Eoyal Bank, writhing under a supposed denial of 


justice, was more forcible than polite ; for we find 
that the Lords, 'taking notice that the terms of a 
petition were indecent and disrespectful to the Court, 
would not allow it to be entered on the record/ 
Then followed an appeal to the House of Lords, who, 
on 9th May 1729, reversed all the decisions of the 
Court of Session, and awarded to the Koyal Bank and 
Cochran the costs, which then formed the only 
question between the litigants, the sums sued for 
having been previously paid." 

It was long before harmonious relations were 
established between the rivals, almost the first thing 
to cause them to coalesce being the prospect of a 
third competitor entering the field nineteen years 
later. But gradually a more creditable style of rivalry 
took the place of the deadly quarrel described. It 
was through the medium of their note issues that the 
banks harassed each other ; and as the Old Bank's 
issue was greater than that of the Koyal Bank, the 
latter was enabled to operate with more effect than 
the former. Arnot, in his History of Edinburgh 
(1816, p. 411), says: "Agreeably to the envious 
policy so frequent among commercial companies and 
states, when the Royal Bank was created, that com- 
pany purchased up all the notes of the Bank of 
Scotland that they could lay hands on, and made such 
a run upon this bank as reduced them to considerable 
difficulties. To avoid such distresses for the future, 
the Bank of Scotland, on the 9th of November 1*730, 
began to issue 5 notes payable on demand, or 
5:2:6 six months after their being presented for 
payment, in the option of the bank. On the 12th 


December 1732, they began to issue 1 notes with 
a similar clause." l 

Thus was initiated the pernicious practice of 
inserting an optional clause in bank notes ; but, as we 
have already shown, the system of deferring payment 
and allowing interest to accrue had been commenced 
long before. This proceeding must have been effectual 
for the purpose in view ; but, the example being 
generally followed in after years by other banking 
companies, it led to great abuses, which seriously 
reflect on the character of Scottish banking, until the 
year 1765, when a legislative prohibition was enacted 
against such optional clauses, as well as against notes 
for a smaller sum than 1. The custom greatly 
facilitated those excessive note issues by persons of 
insufficient means which, in the middle of last century, 
weakened public confidence in banks, and endangered 
the continuance of the right of issue. A writer in 
1787, after describing the erection of the two oldest 
banks, says : " Other banking companies quickly 
followed, both in Edinburgh and other towns in 
Scotland, until at last they became a public nuisance, 
by issuing notes for the most trifling sums, at the 
same time that they were almost entirely destitute of 
capital for carrying on the business of banking, or 
any other." 2 One can sympathise with the harassed 
directors of the Bank of Scotland seeking to avert 
suspension of payments, but it must be regretted that 
they and their successors should have so grievously 

1 See also Logan, pp. 77-78. 

2 History of Edinburgh, Alexander Kincaid, Edinburgh, 1787, 
p. 82. 


misapprehended the essential principles of note issuing. 
Even in our own times, when the development of 
financial economy has to a large extent lessened the 
utility of note issues, these are of great public service, 
notwithstanding the fox-and-the-grapes style of argu- 
ment of non-issuing bankers. But it is essential to 
their character as efficient substitutes for money, that 
they should be convertible into specie on demand. 
Whatever tends to counteract that condition is un- 
sound in principle. 

We may here appropriately notice the origin of 
the now well-known and distinctive feature of Scottish 
banking called cash credits. The name of the author 
of the system is unknown, but the Royal Bank has 
the merit of inaugurating it. The directors' minute 
is dated, we are informed, 12th March 1728, and on 
31st May following, the first cash-credit was granted 
to William Hog, Jun., merchant in Edinburgh, who 
afterwards became a private banker on his own 
account. The principle of the cash credit was simply 
as follows. A trader or other person, not possessed 
himself of sufficient capital for the conduct of his 
business, but who could command the good opinion of 
two or three other persons of known position and 
repute, applied to a bank to have a current account 
opened in his name on which he could draw, on 
balance, to a fixed amount say 500 or 1000 
over and above what he might pay in to his credit. 
Thus the account might at any time show that he 
was due to the bank (say) 500 or 1000, or any 
less sum ; or, on the other hand, it might show any 
amount due to him by the bank. To secure the 


probable and fluctuating debt, the applicant and the 
other persons (he being called the drawer and they 
the co-obligants), signed a formal bond by which they, 
jointly and severally, guaranteed to repay to the bank, 
when called on, the amount of the debt and accrued 
interest. The bond also covered all other transactions 
of the principal debtor with the bank, such as liability 
on bills discounted; but of course not exceeding in 
all, as regarded the sureties, the maximum sum agreed 
on, together with accrued interest. Interest ran only 
on the balance shown by the account at the close 
of business each day, not on the principal sum men- 
tioned in the bond. 

The universal adoption of the system in after years 
was accompanied by material benefits to the nation. 
In a poor but energetic country, such as Scotland was 
in those days, there are always many industrious and 
intelligent people who, from want of capital, are unable 
to exercise their powers beyond the limits of every- 
day requirements. If they are enabled, by the opera- 
tion of credit, to increase their business, their profits 
are proportionally increased, and they are supplied 
with the means of repaying their creditors, and 
eventually accumulating private wealth. At the same 
time, the wealth of the nation is increased by the 
greater productiveness of the national industry. Thus 
it was that Scotland advanced through the instru- 
mentality of its banking system, and in that system 
the practice of lending money without tangible 
security, in reliance on the respectability of the 
applicant, guaranteed by two or three responsible 
persons, has been, perhaps, the most potent element. 


The superior affluence of the general public nowadays 
renders the cash-credit system of less importance in 
comparison with other departments of banking than 
formerly ; but even yet, especially in small centres of 
population, its beneficial effects are largely operative. 

Following the good example shown by the Eoyal 
Bank, the Bank of Scotland soon began to show the 
advantages of competition, by courting the favour of 
the public by increased banking facilities. In 1729 
they adopted the cash-credit system, and in the same 
year they commenced to allow interest at five per 
cent per annum on deposits " on the Treasurer's bond." 
These were presumably the precursors of the more 
modern "deposit receipts." In 1730, as we have 
seen, they took a decidedly retrograde movement ; but 
in 1731 they, with praiseworthy boldness, attempted, 
in repetition of the essay of 1696, to establish a 
branch system. The places selected were Glasgow, 
Aberdeen, and Dundee, being the same as formerly, 
except that Montrose was not again honoured with 
notice. The times, however, were not yet ripe. Two 
years later the branches were discontinued. In 1731 
another change was made in the deposit arrangements, 
by the introduction of the system of fixed periods, 
interest being allowed at four per cent for twelve 
months' notice, and at three per cent per annum for 
six months' notice. 

At this point it is proper to allude to the origin 
of the system of private banking, which forms a 
prominent feature in Scottish financial history during 
the latter half of last century and the first quarter 
of the present century. It is probable that the first 


private banking firm in Scotland was the house of 
John Coutts & Co., Edinburgh. Sir William Forbes 1 
tells us that the founder was Patrick Coutts, a native 
of Montrose, who was in business as a merchant in 
Edinburgh in 1696, and who died in 1704. It is 
evident, however, from subsequent statements in Sir 
William's narrative, that John Coutts, the eldest son 
of Patrick Coutts, must be regarded as the actual 
founder of the house. John Coutts was born 28th 
July 1699, and was therefore only five years old 
when his father died. The latter's business is pre- 
sumed to have " been in a great degree discontinued 
by himself before his death, and wound up by the 
tutors he left to his children." Of the early years 
of John Coutts' life but few particulars have been 
preserved. In 1723 he was engaged in mercantile 
business in Edinburgh, but whether of a continuous 
or intermittent nature is not recorded. It is evident, 
however, that previous to 1730 he must have been a 
man of considerable importance, as in that year " he 
entered the Town Council of Edinburgh [a much 
more exclusive body then than now] as first merchant 
councillor." During two partnerships previous to 
1744, the firm was John Coutts & Co., and subse- 
quently it became Coutts & Trotter. Again, in 1749, 
it was changed to Coutts, Son & Trotter, when, we 
are informed, the capital was 4000, a much more 
considerable sum in those days than it would be 
deemed now. John Coutts died at Mola, near Naples, 

1 Memoirs of a Banking -House, Edinburgh, 1859. See also 
Coutts & Co., Bankers, Edinburgh and London, Ralph Richardson, 
London, 1900. 


on 23rd March 1750; and when, a few years later, 
Mr. Trotter retired from the business, the firm became 
Coutts Brothers & Co. 

There is no reason to suppose that during their 
earlier years the firm were carrying on banking 
business proper; but, in addition to their ordinary 
business of " dealing in corn, buying and selling 
goods on commission," they were also engaged as 
was usual with mercantile firms of credit in those 
days when the domains of commerce and finance were 
not distinguished so definitely as now in " the 
negotiation of bills of exchange on London, Holland, 
France, Italy, Spain, and Portugal." Sir William 
Forbes continues : " The negotiation of bills of 
exchange formed at that period a considerable part 
of the business of Edinburgh ; for there were then no 
country banks, and consequently the bills for the 
exports and imports of Perth, Dundee, Montrose, 
Aberdeen, and other trading towns in Scotland, with 
Holland, France, and other countries, were negotiated 
in Edinburgh." The firm's exchange business gradually 
developed into banking, and instead of being an 
adjunct of the mercantile department, that became 
subordinate to it. Corn and other speculations con- 
tinued, however, to be indulged in until 1761, when 
Sir William Forbes then the senior partner 
abolished the practice. The original designation of 
John Coutts & Co. was renewed in 1763. After the 
death of John Coutts (at Bath on 4th August 1761) 
his sons opened a mercantile house in London, which 
developed into the banking firm of Coutts & Co. 
The house of llerries, Farquhar & Co. was also 


founded by members of the family. To the senior 
partner of the latter firm belongs the credit of the 
invention of circular notes (a species of letter of credit 
generally considered of recent origin), for which he 
successfully established a regular system of corre- 
spondence with the principal cities of the continent 
of Europe. The outbreak of war seems to have 
interrupted the further prosecution of a scheme which, 
in later times, has been resumed on an extensive scale. 
Its present success, however, is more conspicuous than 
its profitableness. 

Although, like other private bankers of their day, 
John Coutts & Co. for long engaged in operations 
dangerously inconsistent with legitimate banking, the 
business appears always to have been managed with 
considerable prudence, so that times of trouble were 
met with sufficient resources, and experience gained 
was always carefully profited by. In consequence of 
a quarrel with Messrs. Coutts & Co., of London, it 
was deemed advisable to drop the designation of John 
Coutts & Co. On 1st January 1773, therefore, it 
was changed to Sir William Forbes, James Hunter & 
Co., and by that name the house continued to be 
carried on during, and for some years subsequent to 
the termination of, its independent career. Under 
the direction of Sir William Forbes the firm rose 
steadily to a high position of credit and influence. 
Among Scotch private banking firms Sir William 
Forbes, James Hunter & Co. occupied undoubtedly 
the highest place. The others were in too many cases 
habitually addicted to those speculative transactions, 
the renunciation of which secured the permanence of 


Sir William's business. The firm is gone, having 
been merged in the Union Bank of Scotland in 1843, 
after five years of practical amalgamation with the 
Glasgow Union Bank, but the business still exists ; 
and in virtue of this connection, the Union Bank can 
claim to rank as the third oldest bank in Scotland, 
while its business succession probably reaches back to 
the pre-banking era. 




CONTINUING our reference to private bankers, the next 
firm which falls to be treated of is that so well known 
in the early years of last century as Kamsays, Bonars 
& Co. The business dates from the year 1738, and 
the founder was James Mansfield, who is designated 
as a " little draper " ; but whether the adjective had 
a personal or a business signification is not stated. 1 
One of the partners, John Mansfield, died in September 
1760, and, presumably in consequence of that event, 
in 1761 the firm appears as Mansfield, Hunter & Co. 
It was subsequently changed to Mansfield, Eamsay & 
Co., and so remained until in 1 8 7 it became Eamsays, 
Bonars & Co. This continued as the style until the 
dissolution of the firm in 1837 an event brought 
about partly by losses in speculations, and partly by 
the growing public disfavour with which private 
banks were regarded. The partners, however, con- 
tinued in the enjoyment of considerable wealth. In 

1 From Sir William Forbes' references it would appear that his 
drapery business was of a humble character. 



the twelve years from 1826 to 1838 the number of 
private firms was largely reduced, seven having merged 
in joint-stock companies, six having failed, and two 
having voluntarily given up business. Only six 
private banks survived this period; and all of them, 
except Alex. Allan & Co. (who were extant in 1855) 
disappeared within a few years thereafter two 
through failure, and three by amalgamation. Joint- 
stock banks were springing up all over the land, and 
the older banks were pushing out their branches. 
Private banks were looked on not without reason 
with increasing suspicion ; and their joint-stock rivals 
many of whom were hardly more deserving of 
confidence enjoyed in inverse ratio the esteem of 
the public. From 1825 to 1840 a fever, or rather 
mania, raged in Scotland regarding the profitableness 
of joint-stock banking ; and during that time eighteen 
new establishments were formed, of which number 
only six now exist. This was, of course, only a 
manifestation of the general joint -stock epidemic 
rampant in the United Kingdom at the time. Much 
reckless competition and general mismanagement 
characterised the direction of these new companies ; 
and although only two the Western and the City 
reached the point of stopping payment, several of 
those which were absorbed by stronger offices have 
been generally considered as in an insolvent condition 
when they transferred their businesses. 

It does not appear whether or not the two firms 
who stand out as the pioneers of private banking in 
Scotland had any rivals during their early years. It 
is possible that one or two houses, such as the Fair- 


holmes and the Cumings, were not much if at all 
behind them ; but on this point there is no certainty. 
A dozen or more firms were in business fifteen years 
later, who all disappeared ere the close of the century, 
for the most part in the memorable year 1772. With 
very few exceptions these firms were merchants and 
commission agents as well as bankers a combination 
of business which characterised Scottish private bank- 
ing more or less throughout its career, and which 
proved very destructive to it. They were, moreover, 
not exactly in the position of competing with the 
joint-stock banks. While transacting all the opera- 
tions of bankers, they acted as a sort of medium 
between the latter and the public. On the one hand, 
they were always customers of one or other of the 
public banks, whose notes they issued (it was not 
until a later period that some firms issued their own 
notes), and whose funds they borrowed to lend out 
on their own responsibility. We shall find that this 
system resulted in a very grave danger ; but it con- 
tinued uninterruptedly for the greater part of a 

Notwithstanding the efforts of the two banking 
corporations and their private coadjutors and rivals, 
the trade and manufactures of Scotland do not seem 
to have thriven to any considerable extent during the 
first half of the eighteenth century. It is probable 
that the people were generally more comfortable than 
they had been previously, as the comparative serenity 
of political affairs permitted them to work to more 
advantage than they had been able to do at any 
former time. But they were still very poor, and far 


behind their English neighbours in the arts of civilisa- 
tion. Even the Irish appear to have been ahead of 
them in some branches of manufacture. A con- 
temporary writer even goes the length of stating, 
in what it may be hoped is somewhat exaggerated 
language, that " luxury, corruption, avarice, and 
ambition are as rampant as ever. Our taxes are as 
high, and our debts, I am afraid, not much diminished. 
Our trade and manufactures continue in the same 
languishing condition . . . These causes have spread 
a face of poverty over the whole nation, especially the 
distant manufacturing ones, which hath excited 
multitudes of poor wretches to several acts of violence, 
notwithstanding our army, as well as the Kiot and 
Black Acts." 1 

The linen trade, however, received much attention, 
and seemed only to require the application of capital 
to develop into a national industry of a remunerative 
nature. An Englishman, writing in 1739, and sub- 
scribing himself " A hearty well-wisher to Scotland," 
alludes to a satisfactory increase and improvement 
in that branch of manufacture, and states that " the 
increase and improvement lately made in the linen 
manufacture of Scotland, has afforded the most solid 
satisfaction to every friend of the interest of Great 
Britain. And the quantities of fine cloth that have 
been sent hither of late hath very much altered the 
judgment of people here, who, from the large parcels 
of slight goods you have hitherto sent us, were apt 
to conclude you incapable of furnishing linen of any 
considerable fineness." 2 He goes on to recommend 

1 Scots Magazine, 1739, p. 9. a Ibid. p. 361. 



the establishment of a society in Edinburgh for the 
prosecution and encouragement of the trade. As we 
shall see, this idea was realised a few years later, though 
on somewhat different lines from those suggested. 

Meanwhile the rebellion of 1*745 broke out, and 
thoughts of mercantile and financial progress gave 
place to the instincts of safety. All the records seem 
to show that the sympathies of the Lowland middle 
class and the townspeople generally were on the side 
of the reigning power. The little progress they had 
made was owing to the security and peace they had 
enjoyed at home (the almost continual foreign wars 
were borne as a chronic evil immeasurably prefer- 
able to the constant unrest at home from which 
the nation formerly suffered), so they were little dis- 
posed to rejoice at the advent of their legitimate 
sovereign, although his efforts were aimed at their 
unloved English rulers. Accordingly, we find that 
the approach of the rebels upon Edinburgh was 
regarded with dread by the citizens ; and the banks 
and some private persons, as well as the Government 
departments, removed their effects into the Castle for 
safety. This was about the 14th September. Three 
days later the Pretender's army took possession of 
the city. In a contemporary account, it is recorded 
that on the 25th September "a proclamation was 
issued, in which, upon a narrative that great incon- 
veniences had attended the removal of the two banks 
into the Castle, and from an opinion industriously 
spread, as if the Chevalier intended to seize on money 
wherever it was to be found; he declared that the 
money lodged in the banks should be entirely sure 


under his protection, and free from all contribution 
to be exacted by him in any time coming, so that 
the banks might return to their former business with 
safety ; and that he himself should contribute so far 
in the re-establishment of publick credit, as to receive 
and issue bank-notes in payments." Notwithstanding 
this polite, but by no means disinterested, manifesto, 
the bank directors continued to regard the security of 
stone walls and cannon as more reliable than the 
words of a prince. 

They were not left undisturbed, however, for, find- 
ing invitations and assurances of no avail, Prince 
Charles Edward sent his officers to the bank managers, 
demanding payment of a considerable amount of their 
notes in specie. Many interviews took place, and 
eventually it was agreed that, if safe access could be 
got to the castle, payment would be made. To under- 
stand the position aright, it must be remembered that 
the Prince's power extended from Holyrood House to 
the city end of the castle esplanade, and intermittent 
conflict raged between that point and the fortress. A 
truce having been arranged between the Government 
forces and the rebels, the bank managers, with their 
assistants, advanced under a white flag, and were 
admitted to the castle. Having counted out the 
necessary amount of coin, they proceeded to utilise 
the opportunity by destroying notes which they had 
deposited with the coin ; but it would seem that the 
authorities of the castle were anxious to get rid of 
them, and so hastened them that they had time only 
to tear the notes in pieces instead of burning them. 
Perhaps the Government commanders disliked this 


wholesale destruction of negotiable securities, which, 
at some turn of Fortune's wheel, might prove useful to 
them. These visits were repeated on several occasions, 
as the rebels were doubtless anxious to convert the 
Scotch notes they possessed into a more marketable 
commodity, in prospect of their advance into England. 
It seems a little curious that the Government authorities 
should have allowed the Prince thus to secure the 
sinews of war ; but, perhaps, their object was to avoid 
reprisals on the city. 

The battle of Prestonpans took place on the 21st 
September, five days after the prince entered Edin- 
burgh ; and on the 31st October he left it with his 
army for the south. By the middle of November, 
the law officers and other Government authorities 
had returned to the city from Berwick, where they 
had sought safety, and the banks resumed business. 
It was not until February of the succeeding year, how- 
ever, that affairs were so far settled as to allow of 
the full resumption of their operations by the banks. 

On the 16th April 1746, the rebellion practically 
ended with the battle of Culloden ; and soon there- 
after we find that the suspended proceedings in 
connection with the linen trade were resumed. This 
manufacture had for long been the most important 
in Scotland ; but it would seem that at the time of 
the formation of the Board of Trustees for Manufac- 
tures (1*727) it had very largely fallen off. By a 
system of premiums and bounties, they endeavoured 
to encourage it in a similar way to that pursued in 
Ireland, although not at a proportionate cost to the 
State. Whether owing to this nursing, or to the 


more satisfactory process of spontaneous energy on 
the part of the people, a gradual improvement mani- 
fested itself. During the five years, 1727-32, the 
value of linen cloth stamped for sale within Scotland 
is stated to have amounted to 662,938; and so 
rapidly did the trade increase that, in the five years 
1746-51, it had risen to 1,607,680. In this 
latter period, several manufacturing companies were 
formed for the prosecution of trades hardly attempted 
previously. Among these were rope and sailcloth 
manufactories, ironworks, gold and silver lace com- 
panies, sugar refineries, herring and whale fisheries. 
We are, however, principally concerned with the 
establishment of a corporation for the encouragement 
of the linen trade, but which has for fully a hundred 
and twenty years been better, if not exclusively, 
known as a bank. 

The British Linen Company was incorporated by 
charter of George II., dated 5th July 1746. The 
authorised capital was 100,000, but of this only 
50,000 was offered for subscription at the outset. 
No decisive movement appears to have been made 
until 17th September, when a general court of the 
proprietors (presumably few in number) was held to 
settle " the method of proceedings at elections, the 
forms of oaths, and several other rules and bye-laws." 
It was agreed " that a seal be made for the company 
in the figure of a Pallas," and that the subscription 
books for the capital should be kept open at Edin- 
burgh and London until 50,000 were subscribed 
for. Of these subscriptions 10 per cent was to be 
paid by 1st December, and the court of directors was 


authorised to borrow money, "in case of need," on 
bills or bonds under the company's seal, and they 
were required to meet at least once a week. The 
first managers appointed were Ebenezer Macculloh 
and William Tod, merchants in Edinburgh. In the 
warehouse there were to be " a book-keeper and an 
accomptant, two staplers to give out the yarn and 
receive the cloth, and a porter." These four officers 
were endowed with "salaries not exceeding 150 
in whole " ; and they were prohibited from receiving 
gratuities or keeping public-houses or pawnshops. 

In the disposal of profits a more liberal system 
was adopted, and it was evident that the projectors 
calculated on a very remunerative business from the 
outset. The proprietors were to get 5 per cent per 
annum on their paid-up stock preferentially. The 
managers were to get 2 per cent, and the directors 
^ per cent, on the sales, and losses were to be pro- 
vided for out of the remainder. 1 To our modern 
ideas these arrangements savour of reckoning with- 
out the host ; but doubtless the company knew very 
well what they were about. They gradually engrafted 
banking on to their original business. In 1750 they 
began issuing their own notes, and they doubtless 
engaged in general financial business from an early 
period ; but, although their name occurs in the 
earliest lists of Edinburgh bankers, their banking 
business seems to have been (until a comparatively 
late period) of a semi -private nature, and to have 
resembled that of contemporary private bankers. 
They gradually withdrew from all mercantile and 
1 Report of meeting, Scots Magazine, 1746, p. 624. 


manufacturing operations, which were brought to 
a close in the year 1763. But it was not until 19th 
March 1849, when they obtained a new charter, that 
they were formally recognised as a banking corporation. 

Ten years later than Messrs. Mansfield & Co., 
another important private banking house arose. It 
was that of Messrs. Thomas Kinnear & Sons, who 
first began their business as bankers in 1748. The 
house maintained a good position during all the 
private banking era, but signs of weakness seem to 
have shown themselves towards the close of their 
career. They passed through the fiery trial of the 
Douglas, Heron, & Co. period, when almost all the 
private banks in Edinburgh were swept away; but 
they could not withstand the current of the public 
mind towards joint -stock banking, which became 
strongly developed in the first quarter of the present 
century. In 1831 they were joined by the much 
younger firm of Donald Smith & Co., as Kinnears, 
Smith & Co. ; but the amalgamation was of little 
avail, for on the 24th July 1834 the firm closed 
their doors. They did not issue their own notes, but 
used those of the Bank of Scotland. 

About this period forgeries of bank notes appear 
to have been frequent. The punishment inflicted was 
usually transportation to the plantations; but occa- 
sionally the more summary and effective preventative 
of hanging was inflicted. In the former case, if the 
convict returned to the country, he was to be whipped 
periodically until re-transported. These forgeries seem, 
however, to have been poorly executed and readily 



UP to the time when Thomas Kinnear & Sons com- 
menced business, the banking business of Scotland 
was entirely confined to Edinburgh. It was not 
until the succeeding year that the first attempt at 
provincial banking was made. Owing to the jealous 
and vindictive policy of the two public banks, it 
proved unsuccessful. The first country bank was 
erected in Aberdeen (1749), by Messrs. Livingston, 
Mowat, Bremner & Dingwall, as the Banking 
Company at Aberdeen. (They were the first private 
company to issue bank notes in Scotland. 1 ) This 
movement was well timed, and was calculated to be 
of great service to the important district of Aberdeen- 
shire. The Scottish Jacobite troubles were practically 
settled for ever, by the discountenance shown to the 
Stuarts subsequently to the Treaty of Aix-la-Chapelle ; 
and the conclusion of the Austrian war of succession 
gave a period of peace to the harassed European 
powers. This satisfactory state of matters permitted 

1 Fleming. 


attention to be devoted to the encouragement of 
British industry, and the country ceased to be drained 
of its blood and treasure. Circumstances looked 
favourable for the extension to the provinces of 
Scotland of those banking facilities which were so 
beneficial to the metropolis. But the wisdom of the 
ever -intelligent and enterprising Aberdonians was 
destined, in this matter, to be thwarted at the outset 
by the narrow monopolistic views of the financial 
magnates of the capital. 

It does not appear, however, that the Edinburgh 
banks paid much attention to the Aberdeen bankers, 
until they showed symptoms of proving formidable 
rivals in the matter of circulation of notes, and until 
a similar danger manifested itself in Glasgow. The 
Bank of Scotland and the Eoyal Bank then established 
an agent in Aberdeen, to encourage the circulation of 
their own notes, and to collect those of the new 
company, and to get them retired for specie or 
Edinburgh notes. The scarcity of coin in the 
country proved the ruin of the Aberdeen Company. 
They could not long sustain the drain on their 
resources, and accordingly towards the close of 1753 
after little more than four years' existence they 
gave public notice of the dissolution of their partner- 
ship and their cessation of the issue of notes. 

The biassed author of the narrative of their down- 
fall attributes their inability to withstand the assault 
of the Edinburgh banks to their own inherent want 
of strength, without reflecting that the Bank of 
Scotland itself had more than once given way from 
want of specie in its coffers. It may be that the 


Aberdeen adventurers were injudicious in the extent 
to which they pushed their issues in proportion to 
their metallic reserves; hut the fierce attack of the 
comparatively wealthy, and wholly unsympathetic, 
Edinburgh banks was of itself sufficient to put a stop 
to their operations. As it is, there is no assertion 
that they at any time failed to meet demands made 
on them, and their retirement from business was 
entirely voluntary. Elsewhere, it is true, there is 
record of an application to the Clerks of Session to 
register a protest of the Aberdeen bankers' notes, in 
order that summary diligence might pass on them, 
which was referred to the Judges, and unanimously 
refused as incompetent ; but it does not seem that 
whatever delay may have occurred through the un- 
worthy tactics of the public banks, that the partners' 
credit was at any time doubted. A disinterested 
judgment must, in the absence of further evidence, 
ascribe the failure of this, the earliest attempt to 
establish that magnificent system of country banking 
which has proved one of the distinguishing features 
of Scottish banking, to the prejudice and short-sighted 
self-interest of the two oldest banks. 

But a greater danger in the matter of competition 
was engrossing the attention of the Edinburgh banks ; 
and, flushed with their success in the north, they soon 
bent their energies to the suppression of formidable 
rivals who had arisen in the western capital. Up 
to the year 1*749, the merchants of Glasgow were 
entirely dependent on the Edinburgh banks for 
banking accommodation ; and, notwithstanding the 
competition between the two banks, cash credits were 


very sparingly granted, and capriciously withdrawn. 
The Glasgow merchants favoured the New in pre- 
ference to the Old Bank (they were always so distin- 
guished in those days), and this had favoured the 
circulation of the notes of the former. The increasing 
business of the city made this dependence inconvenient ; 
and the merchants made a proposal to the two banks 
to establish an office in Glasgow for the transaction 
of their local business. Whether from mutual jealousy, 
or from a mistake in judgment as to the effect of such 
action, this opportunity of preserving their monopoly 
of the banking business of Glasgow was, happily for 
the prosperity of that city, lost to the Edinburgh 

In order, however, to improve its position among 
the Glasgow merchants, the Bank of Scotland, in the 
same year that the bank at Aberdeen was started, 
promoted the establishment of a banking company in 
Glasgow, under the designation of the Ship Bank, the 
firm being Dunlop, Houston & Co. 1 Not to have the 

1 In Campbell's Historical Sketches of Greenock an interesting story 
is told of an imposition on this bank early last century. A man, 
purporting to be Sir Thomas Maitland, Admiral and Lieut. -General, 
drove up to the bank, in a magnificent hired equipage, and presented 
his order on Smith, Payne & Smith for 90. Both writing and 
spelling were defective ; but Mr. Rowand, the manager, seems not to 
have expected proficiency in such matters from a distinguished sailor 
and soldier. He was particular enough, however, never to discount 
to a stranger without an introduction. As Sir Thomas professed to 
know the minister of the Gorbals, he was referred to him for an 
endorsement. In due time he returned with the reverend gentleman's 
name on the back of the draft, and got the cash with a superfluity of 
deference. Doubts having presented themselves to the mind of the 
chief clerk, he submitted them to the manager, who sent to the 
clergyman to ask him to verify his signature, when it was discovered 


wind taken out of their sails, the Koyal Bank next 
year got up the Glasgow Arms Bank of Cochran, 
Murdoch & Co. Each of the new companies got cash 
credits from their respective patrons. Self-confident 
in the superiority of their resources, and over-estimat- 
ing the dependence of the western traders, who 
themselves appear to have been unconscious of their 
own powers, the Edinburgh banks regarded these new 
bankers merely as agencies for the conservation and 
encouragement of their business. With true Glasgow 
precocity, however, the banking chickens had hardly 
chipped the shell ere they began to forage on their 
own account. 

At last, realising the gravity of the case, the two 
old banks united their efforts to crush their protdgts 
ere years should give them strength. They withdrew 
the credits granted, and ordered the two firms to give 
up their business. But the Glasgow merchants were 
not to be thus browbeaten ; and, while desirous to 
maintain amicable relationships, declined to do as they 

to be a forgery. The ' ' admiral " was then sought for, and eventually 
found in the Highlands, whither, discarding his grand get-up, he had 
fled. He confessed that he was a discharged soldier who had lost an 
arm at Badajoz. The banker was so badgered at the trial by the 
prisoner's counsel Erie Monteith that he declared he would rather 
have lost the money than have come through such an ordeal. The 
prisoner was sentenced to be hanged ; but Mr. Rowand exerted him- 
self so strongly in his favour that the sentence was commuted to 
transportation. There is a smack of the sea and piracy, appropriate 
to a reference to the Ship Bank, about a statement in Banking in 
Glasgow that "it was the duty of the youngest apprentice to protect 
the treasure during the night, for which purpose he was armed with a 
gun, powder-horn, and a few charges of slugs, and locked in till 
morning. A bugle lay beside him to sound an alarm. For this 
dangerous service he received a present of 1 : 10 : 6 yearly." 


were told. In this action they were well supported 
by the public spirit of the inhabitants. The Edinburgh 
banks then commenced a series of those persecutions 
with which they had formerly afflicted each other and 
the Aberdeen company. For this purpose they em- 
ployed Mr. Archibald Trotter, once a partner in the 
house of John Coutts & Co., who had settled in 
Glasgow in 1757, to collect notes of the new firms 
and present them for payment in considerable sums. 
They had, however, heavy metal to deal with. The 
Glasgow bankers were not slow to adopt the petty 
tricks for delaying payment which had been taught 
them by their oppressors. It would even seem that, 
in several cases of delayed payment of notes which 
occurred, they acted not so much from want of cash, 
as with the object of tantalising their quondam 
patrons. The strife drifted into litigation, and was 
not closed for several years ; but the independence of 
the new banks was secured. The older of the two 
the Ship Bank maintained an active career until 
1838, when it merged in the Glasgow Union Bank, 
having, in the year previous, amalgamated with the 
Glasgow Banking Company, as the Glasgow and Ship 
Bank. The Glasgow Arms Bank, which was the one 
that Trotter had most trouble with, was not so for- 
tunate, for it got into difficulties, and was sequestrated 
in 1793. The partners eventually paid their liabilities 
in full, without interest. 

About this time private banking seems to have 
advanced apace in Edinburgh. Between 1750 and 
1760 some ten private firms appear to have come 
into existence ; so that with those previously in 


business, there appear to have been about twenty 
private banks in operation at the last-named date. 
The most important of those not already referred to 
were the houses of Adam & Thomas Fairholme, 
Win. Cuming & Sons, Wm. Alexander & Sons, and 
Seton & Houston. Of these, all but the Cumings, 
and perhaps Seton & Houston, engaged in corn and 
other commission businesses as well as banking a 
combination which proved their ruin some years later. 
It was about this time (1761) that, as Sir William 
Forbes tells us, his firm gave up speculation and 
devoted themselves exclusively to banking, to which 
action he rightly attributes their further success. 
Other firms which arose in the decade, 1750 to 1760, 
or immediately previous to it, were William Hogg 
& Son, in whose house the afterwards eminent Dr. 
Robert Hamilton spent some of his earlier years ; 
Johnstone & Smith (afterwards Johnstone, Smith 
& Co.), Fordyce, Malcolm & Co., Arbuthnot & Guthrie, 
Gibson & Hogg (subsequently Gibson & Balfour), 
Scott, Moncrieffe & Ferguson, and Andrew Sinclair 
& Co. 1 Of individual bankers, George Chalmers, 
Samuel Foggo, John Fyffe, and William Hogg, jun., 
probably complete the list. Most of these had passed 
away by 1772. They were mainly mercantile houses, 
but dealt in exchange business, and banking generally, 
as occasion offered. 

From a curious paper published at Edinburgh in 
1778, entitled "Bank Disputes," reference is made to 

1 Sir W. Forbes (followed by Mr. Richardson) styles this firm 
W. Sinclair & Co. No confirmation of this has been found. Perhaps 
it was a misprint. 

CRISIS OF 1761-62 79 

a "convulsion of credit 1761 and odd years, in which 
the Koyal Bank took no part." What is meant is 
not exactly apparent ; for, although the Seven Years' 
War (1*756-63) disturbed the circulation of specie in 
Scotland, we are unaware of any special crisis which 
occurred in consequence heyond the action of the 
banks (including the Eoyal) in December 1761, in 
reducing cash accounts by one-fourth. This proceed- 
ing seems to have been absolutely necessary, in order 
to replenish the reserves of coin. A contemporary 
account states that " exchange has risen so high that 
bills on London, at a short date, sell at Edinburgh 
at four and a half and even five per cent, a rate 
considerably higher than exchange has amounted to 
for forty years." One of the causes contributing to 
this condition of the money market appears to have 
been the realisation of funds in Scotland by proprietors 
desiring to purchase the public funds, which were 
then at very low prices, consols being quoted, even 
after the peace in 1764, at 45 per cent. This money 
was paid in Scottish bank notes ; and, it being necessary, 
in order to remit the funds to London, to exchange 
them, there arose an extraordinary demand for cash 
or bills upon London on all the banking companies 
in Scotland. 1 The year 1761 appears to be in the 
natural series of periodic crises. 

In January 1762, the Edinburgh banks made a 
further restriction on holders of cash credits, prohibit- 
ing them from paying in and drawing out money on 
the same day. This provision appears to have been 
aimed at the private bankers, whose practice was to 

1 Logan, 2nd ed. p. 79. 


draw out a supply of cash every morning, and re- 
deposit the balance on hand in the afternoon. The 
prohibition must have been afterwards withdrawn, 
for the practice continued till the close of private 
banking. In March following, the banks took a 
further step to strengthen their position, for we find 
them advertising as follows : " Both the banks at 
Edinburgh, established by Parliamentary authority, 
hereby give notice, that they have resolved to receive 
in money at their respective offices, in the way of 
borrowing, on the treasurer or cashier's receipts, for 
six months certain, or longer, as shall be agreed on, 
at the rate of five per cent per annum ; and at four 
per cent per annum repayable on demand, on cash 
accounts, free of all charges. That this measure is 
taken to avoid the inconvenience of a sudden call 
upon their debtors, and towards the support of public 
credit, trade, and manufactures, which have always 
been the care of the banks." At this time the notes 
of the Bank of Scotland bore the well-known optional 
clause, an option of which they seem to have taken 
the benefit in some instances (for the first time, it was 
believed) by marking notes presented for payment; 1 
but those of the Eoyal Bank were payable on demand. 
The exchange on London had now fallen considerably, 
and by April the rate was only per cent ; and so 
the crisis passed away. Next year the banks gave 
notice that they had resolved to repay the deposits taken 
at 5 per cent, as they were unable to make a profit- 
able use of the money. 

In passing, we may refer to a few points worthy 
1 Scots Magazine, April 1762, 


of notice which occurred during the period we have 
just gone over. By the year 1750 the metallic 
currency of Scotland had become almost entirely 
replaced by the notes of the public banks. The 
country was always deficient in coin, so the circulating 
medium supplied by the banks was readily appreciated ; 
and, as there was an almost incessant drain of specie 
to England, the tendency of paper to drive out coin 
was accelerated. In 1752 the Bank of Scotland 
and the Eoyal Bank commenced the system of note 
exchanges 1 which has (with modifications) continued 
to the present time, and to which must be greatly 
attributed the high character for convertibility always 
attaching to the issues of the banks in Scotland. Guinea 
notes were first issued by the Eoyal Bank in 1758, 
and bore the date 24th March. 

The success of the two Glasgow banks does not seem 
to have furthered the development of country banking 
for some time, as we find that no other bankers entered 
the field out of Edinburgh up till 1761, a period 
of eleven years from the establishment of the Glasgow 
Arms Bank. In that year (3rd November), however, 
the Thistle Bank Company of Sir Walter Maxwell 
of Pollock, Bart., James Eitchie & Co. commenced 
business. This firm merged in the Glasgow Union 
Bank in 1836, after a prosperous career of seventy- 
five years. David Watson, whose firm became after- 
wards James & Eobert Watson, also founded a private 
banking house in Glasgow about this time ; but the 
business appears to have been more an agency for 
other banks than an independent one. Dundee was 

1 Reid's Manual. Also Logan. 


the next town to take up the trade of banking. In 
1*763 the firm of George Dempster, Esq., & Company 
commenced as bankers, under the designation of the 
Dundee Banking Company. Unlike the Glasgow 
banks, this was (in form at least) a regular joint-stock 
company, the original partners in which numbered 
thirty-six, with a nominal capital of 12,600 in 63 
shares of 200 each. Of this, only one-tenth was 
called up at first. The bank got into difficulties in 
comparatively recent years ; but it was restored to a 
prosperous career by the discretion of the late Mr. 
C. W. Boase, who was appointed manager. While 
still under his management, the bank, which had 
then a capital of 100,000 paid up, and a large 
business, was amalgamated with the Eoyal Bank of 
Scotland in 1864. 1 

Another incident which deserves notice within 
this period was the failure, in March 1764, of Messrs. 
Adam & Thomas Fairholme. They had not been 
long established as bankers ; but Sir William Forbes 
states that "the family of Fairholme had for some 
generations been considered as of distinguished credit 
and reputation." He adds, " They dealt largely in 
corn like their neighbours, in receiving money on 
deposit, and in exchanges." During the Seven Years' 
War, Government stocks were depressed in price, and 
Adam Fairholme speculated largely in them. Prices 
rose in prospect of peace, and he might have secured 
a large profit (estimated at 70,000). But, eager 
to make still larger gains, the play was continued 

1 A Century of Banking in Dundee, C. W. Boase, Edinburgh, 
1864 and 1867, 


until not only was the profit lost, but the firm was 
crushed under an overload of obligations. 

No other banking failure occurred at this time, 
but the effects of this crisis, while not serious, are 
described as "extremely unpleasant." The rates of 
exchange on London ruled from 3 to 5 per cent 
premium, occasioning a heavy demand for gold for 
remittance to the south. To protect themselves, the 
banks restricted their advances, and thus kept down 
the amounts of their note issues. There was, con- 
sequently, both a severe strain on the banks and 
great inconvenience to the general business community. 
But the difficulties of the situation were satisfactorily 



THE year 1765 is notable, in Scottish banking, on 
account of the first Act specially regulating the 
business having been then passed. Previous to that 
date, there were no restrictions on the proceedings of 
the various establishments, other than those embodied 
in their individual constitutions, or imposed by the 
common law of the land ; and it was only in the case 
of the three oldest banks that the constitutions were 
prescribed by competent authority ; the others being 
entirely free to lay down, or abstain from laying down, 
such rules as to the partners seemed fit. In point of 
fact, however, the old establishments set the example, 
and moulded the general principles, which were 
adopted throughout the country, for the conduct of 
banking business. That they should have survived, 
while the majority of their imitators have passed 
away, is to be attributed to the fact that the younger 
establishments, in the eagerness of their rivalry, forgot 
the principles they nominally adhered to, while they 
had not sufficient strength and credit to carry them 
through trials which were met by their powerful com- 
petitors with comparative ease. 



The practical immunity from legislative interfer- 
ence which characterises banking in Scotland until 
the year 1844 has been an unmistakable blessing 
to the country, and has saved the banks from those 
vexatious and unnecessary distinctions and restrictions 
which have hampered and distorted English banking. 
In Scotland, banking was permitted to develop as the 
country advanced in wealth and in intelligence. Nay, 
it was even enabled to lead the nation on the path of 
prosperity, and to evolve, from practical experience, a 
natural and healthy system of banking, which would 
have been impossible under close State control similar 
to that followed in other countries. Despite the mani- 
fest errors and stains conspicuous in the history of 
Scottish banking, the system matured by Scottish 
bankers is justly acknowledged to be a model one. 
Freedom, however, has its limits ; and, at the time 
we are now dealing with, it had become absolutely 
necessary to impose some check on the indiscriminate 
issue of notes, which had been pushed to an extent 
which produced the pardonable, but not strictly 
accurate, contemporary exclamation of a writer in the 
Edinburgh Advertiser : " Since the beginning of the 
world there never was a nation so much abused by 
banking as Scotland is at present, and probably never 
will again till the end of time." 

The grievance was not that there was an over- 
issue of notes (although that was freely stated), for 
with the system of periodical exchanges, which even 
then was pretty systematically carried out, that was 
impossible except to a small extent. The main evil 
lay in the pernicious practice devised, as we have 


already seen, by the Bank of Scotland during its early 
troubles with the Eoyal Bank (1730), of inserting in 
the bank notes a clause making them repayable at a 
term after presentation (usually six months) in the 
option of the issuers. Although it was stipulated 
that, in such circumstances, interest should accrue on 
the principal sum at 5 per cent per annum, the option 
was entirely inconsistent with the nature of bank 
notes, whose legitimate character is that they should 
be convertible into specie on demand. The action was, 
besides, of the nature of a forced loan, in regard to 
which the lender had no say. Moreover, by this 
means, persons of little or no substantiality were 
enabled to raise money by an unadvisably easy method, 
which was availed of to a very large extent as far as 
the number of issuers was concerned. 

This phase of the note circulation was greatly aggra- 
vated, by the practice of issuing notes for very trifling 
sums, varying from one shilling Scots upwards. The 
regular bankers do not seem ever to have adopted a 
smaller issue than five shillings ; but a multiplicity of 
business firms, and small partnerships organised for 
the purpose, thrust their worthless paper on the public. 
This appears to have been accomplished, mainly, by 
employers of labour paying wages in this personally 
convenient form. It would probably be impossible to 
enumerate all the instances of this species of note 
issues, but the following examples may be both inter- 
esting and amusing. James Smiton, seemingly a coffee- 
house keeper in Edinburgh, obliges himself " to pay 
the bearer, on demand, in money or drink, two shillings 
and sixpence sterling," on the backs of which notes, it 


is stated, " are sometimes marked receipts for one or 
more mugs of porter, or bottles of strong ale, &c., in 
part [payment]. " P. Williamson, Edinburgh, under 
the designation of the Keady-Money Bank, promises 
" to pay to Sir John Falstaff, or bearer on demand, in 
books, coffee, or ready-money, according to the option 
of the Director (!), One shilling sterling, value received." 
The Mason Barrowman Company of Edinburgh issued 
a lengthily-worded and formidable-looking document 
for the value of one shilling Scots (one penny sterling). 
Perth, however, was the great seat of this industry. 
There, notes were issued by the " "Wright Journiman 
Company " for one shilling Scots ; by the " Tannery 
Company " (Stewart, Eichardson & Co.) ; by the Craigie 
Company " (John Kamsay & Co.) ; John Stewart & 
Co. ; Blacklaws, Wedderspoon & Co. ; and MacKeith, 
Eintoull & Co. 1 But, while the epidemic was most 
virulent in the old town of St. Johnston, it was 
general throughout the country. Even in Stornoway, 
in the Lews, there was an issue by the local proprietor. 
In this case, however, it is probable that no smaller 
denomination than 1 was used, and that the issue 
was justified by the want of currency 2 George Kellor & 
Co., wine and spirit merchants in Glasgow, Martinson 
& Co. at Falkirk, James Scrimgeour & Son at Borrow- 
stounness, and Alex. Fleming & Company at Kirkliston, 
issued similar notes. These, together with the Perth 
notes, were made retirable in Edinburgh, when public 
opinion became clamant against this species of im- 
position. The position of this matter was rather 

1 Boase, p. 56. 
2 This issue may not have commenced until a later period. 


piquantly hit off by a print, purporting to be a note 
dated Glasgow, 16th January 1765, promising to pay 
one penny sterling, or, in the option of the directors, 
in three ballads, six days after demand. The border 
was ornamented with figures of wasps, and the note 
bore the motto, " We swarm." 

Although this state of matters was highly objec- 
tionable, and justified the futile endeavours of county 
magnates to refuse such notes in payment of rents, 
taxes, etc., the existence of these notes was occasioned 
by a severely felt public want of a medium for small 
payments. The metallic currency of Scotland was, 
and had been for an indefinite period, in a chronic 
state of insufficiency. Some theorists may hold that 
the paper drove out the coin ; but, although this is a 
sound theory in general, it will not hold in the present 
case, for the want of coin was felt before any notes 
existed, and the denominations of the notes were only 
lowered below 1 as the necessity for small change 
became pronounced. Moreover, it is clear that there 
was a distinct suction of coin to England, to assist in 
meeting war expenditure abroad ; and during the in- 
tervals of peace, English investments in Scotland were 
withdrawn for employment at home, where a state of 
war prevented so profitable a use of capital as the 
poverty of Scotland at all times admitted of. From 
innumerable statements, it is evident that the silver 
coinage in Scotland (gold had been almost entirely 
replaced by notes) was altogether inadequate to meet 
the requirements of the people. Even the large banks 
experienced great difficulty in maintaining their re- 
serves. This scarcity of coin was the cause both of 


the optional clause and of the issue of small notes. 
Indeed, some contemporary writers held that the op- 
tional clause was a necessary counteraction to the tricks 
of English bullion jobbers, who drew fictitious bills on 
London, at 30 days' currency, which they sold in 
Edinburgh at a premium for notes payable on demand. 
These in turn being converted into gold, the proceeds 
were sent to London to meet the bills which would fall 
due a few days after the arrival of the remittance. 

In response to the agitated condition of the public 
mind in regard to the note circulation, the Bank of 
Scotland and the Koyal Bank induced the then Lord 
Advocate, Thomas Miller, Esq., of Barskimming, after- 
wards Lord President of the Court of Session and a 
Baronet, to bring in a bill dealing with the subject. 1 
The result of this representation was the Act of 
George III. cap. 49, entitled, "An Act to prevent the 
inconveniences arising from the present method of 
issuing notes and bills by the banks, banking com- 
panies, and bankers, in that part of Great Britain 
called Scotland." The provisions of this Act were : 
(1) That from and after 15th May 1766, it should 
not be lawful to issue " any note, ticket, token, or 
other writing for money, of the nature of a bank-note, 
circulated, or to be circulated as specie, but such as 
shall be payable on demand in lawful money of 
Great Britain, and without reserving any power or 
option of delaying payment thereof for any time or 
term whatever." Also, that such as were in circula- 
tion at that date, should thenceforward be deemed 

1 The Scots Magazine, October 1769, states that the credit for this Act 
is chiefly due to the Earl of Eglinton, whose murder they then record. 


payable on demand. (2) That summary execution 
might proceed on all bank notes not paid on demand 
one protest being allowed to include any number 
of notes. (3) That from and after the 1st day of 
June 1765, no bank note should be issued for any 
sum of money less than 20s. sterling, and that those 
which had been issued up to that date might be 
allowed to circulate for one year thereafter. The 
penalty attached to infringement of the provisions of 
this Act was a fine of 500 with costs of suit, pay- 
able to informers. The delays prescribed for the full 
enforcement of the provisions of the Act were doubt- 
less intended to allow time for the accumulation of 
reserves of coin, and for an increase in the metallic 
circulation ; but it does not seem that the Govern- 
ment took any steps towards practically assisting this 
movement. Indeed, it is probable that unless the 
banks had themselves moved in the matter, the 
abuses of the circulation would have gone on un- 
heeded by the rulers of the land, whose heads were 
always more engrossed, in those days, with foreign 
dynastic intrigues, and the raising of loans and 
taxes at home, than with the social questions which 
distressed their subjects. 

A minor effect of this Act was an alteration of the 
hours during which the banks were open for business. 
Formerly they were open forenoon and afternoon, 
with an interval for refreshment : (we read of the 
worthy citizens going for their " meridian " when the 
" gill-bells " rang at half-past eleven from St. Giles, 
just as in the afternoon they took their " four hours' 
penny," i.e. a penny glass of ale). This arrangement 


was changed to a continuous period from nine to 
three o'clock ; these being the hours during which 
notes not paid on demand might be protested. It 
need not be supposed that total abstinence during 
these hours supervened ; doubtless a luncheon hour 
(whatever it might be termed) would be arranged on 
some system of relays. 

We are now approaching the great Scottish banking 
crisis of 1772, which will fall to be treated of in our 
next chapter; but meanwhile we may note some of 
the principal incidents which occurred from 1763 till 
that date, other than those already dealt with. In 
our last chapter we alluded to the establishment of 
the Dundee Banking Company of George Dempster & 
Co., which commenced business on 1st August 1763, 
with a paid-up capital of 1260. Although during 
the century of its existence, terminating with its 
amalgamation with the Eoyal Bank of Scotland in 
February 1864, it gradually developed into an 
institution of no small moment, having a paid-up 
capital of 100,000, deposits to the amount of 
685,000, and a note circulation of 41,000, it 
was in its early years classed with the note societies 
of which we have been treating. It was, however, 
from the first in all respects a bank ; and although 
about the year 1837 it was actually in a state of 
insolvency, from which it was only rescued by 
systematic good management, it played a most im- 
portant part in developing the industries of Dundee 
and Forfarshire ; and as the first bank formed in 
Dundee, and one of the earliest and most successful 
of the provincial banks, it possesses a peculiar interest. 


Its progress has been fully chronicled in a series of 
valuable statistics and notes (a quarry of information) 
by its last manager, Mr. C. W. Boase, who, while 
managing partner of the Dundee New Bank, was 
called on to readjust its embarrassed finances, which, 
as we have seen, he amply succeeded in doing. 

The private firm of John Macadam & Co., in Ayr 
(or Air, as it was then spelled), was also established 
in 1763. The business was purchased eight years 
later by Douglas, Heron & Co. The year 1766 
witnessed the formation of the Perth United Com- 
pany. It was dissolved on 6th May 1787, its notes 
being retired and the banking business carried on by 
a new company under the firm -name of the Perth 
Banking Company, which existed until 1st August 
1857, when it joined the Union Bank of Scotland. 
The firm of Alex. Johnston, Hugh Lawson & Co. in 
Dumfries, which was another of Douglas, Heron & 
Co.'s bad bargains, also commenced in this year (29th 
October). In the succeeding year (1767), the long- 
headed Aberdonians made up for their abortive 
scheme of 1749 by establishing the Banking Com- 
pany in Aberdeen, which proved a most wonderful 
success. It was organised as a regular joint-stock 
company. The contract of copartnery, which took 
effect as from 1st January 1767, ascribes the forma- 
tion of the company to the great scarcity of all kinds 
of specie in the north of Scotland, and the dangers of 
" the extensive and industrious circulation of a variety 
of bank-notes issued and signed by people unknown 
in this part of the country," as well as for the pro- 
motion of local industries. It defines the business to 


be engaged in as "issuing notes of hand, lending 
money on cash-accounts, bills, or permanent securities, 
purchasing bills of exchange, and discounting inland 
bills or notes." The capital subscribed was 72,000, 
in shares of 500 each, of which 200 was to be 
paid up. This seems to have been immediately 
completed to 75,000, with 30,000 paid up. An 
absolute prohibition against engaging in any other 
business was carefully prescribed; and the other 
regulations were similarly judicious. The company 
appears to have been managed with consummate 
ability during the greater part of its career. Over 
a series of years its dividends averaged 8 per cent 
per annum, besides occasional large bonuses added 
to paid-up stock. In 1836 the paid-up capital 
was 200,000, of which 170,000 was accumulated 
from profits, in addition to a reserve of 50,000. 
The shares, bearing 150 paid, sold in 1821 at 
1400, and in 1836 they were worth 3000. This 
singularly prosperous concern was merged in the 
Union Bank in 1849. 1 About this time the spring 
of 1769 the smaller traders in Glasgow started a 
new bank, called The Merchant Banking Company 
of Glasgow. 

The only important banking incident which 
falls to be recorded at this time is the failure, 
in August 1769, of William Hogg & Son, who had 
been established in Edinburgh for about twenty 
years. They had temporarily suspended payment 
previously, when the senior partner was alive. After 

1 Theory and Practice of Joint-Stock Banking, Peter Watt, Edin- 
burgh, 1836. 


his death the business was continued by his son 
Thomas. The failure was connected with advances 
to a lead-mine speculator. Although the business was 
not extensive, the liquidation seems to have been a 
prolonged one, as notices of meetings appear as late as 
1793. The depositors were not paid in full. The 
surviving partner died in Edinburgh on 12th April 
1784. This bankruptcy had little effect on the 
general position. In the same year the miserable 
three years' fiasco of Douglas, Heron & Co. commenced 
its ruinous career. 



THE action of our history for the years 1769-72 
centres and culminates in the rise and fall of the 
banking-house of Douglas, Heron & Co., trading under 
the designation of the Ayr Bank. With the exception 
of the Darien Scheme, the failure of which is attri- 
butable in great measure to circumstances independent 
of its constitution and management, there has never 
been in the history of Scotland so signal an instance 
of financial mania. We do not mean that the con- 
tract of copartnery was framed on erroneous principles, 
or that the operations of the bank were absolutely 
prejudicial to the country. On the contrary, the 
constitution of the company was carefully drawn, and 
provided the usual preventatives to mismanagement ; 
while advances made to customers had a very stimu- 
lating effect on the agricultural and other industries 
of the nation. The madness consisted in the un- 
written principles on which the promoters started 
and carried on the concern. The promoters were, 
seemingly, men who, like too many business men of 
the present day, thought that the old banks selfishly 



studied their own interests to an extent both unneces- 
sary and injurious to the progress of the industries 
of the country; and that, at the same time, they 
were monopolising a lucrative trade, which could be 
profitably competed for by men of larger views. 

They, therefore (to quote their own words), " con- 
sidering that the business of banking, when carried 
on on proper principles, is of great public utility, 
particularly to the commerce, manufactures, and 
agriculture of a country, at the same time that it 
may yield a reasonable profit to the bankers concerned 
in it ; and likewise considering the necessity there is 
in the present situation of the country, that a Banking 
Company should be created on proper principles at 
this juncture . . . resolved to establish a Banking 
Company upon a solid, creditable, and respectable 
footing." The contract of copartnery is dated 24th 
August 1769, and provided for a capital of 150, 000. 
Among the original shareholders, whose subscriptions 
amounted to 96,000, were the Duke of Queensberry 
and Dover, Governor ; the Duke of Buccleuch ; the Earl 
of Dumfries, Director ; the Earl of March and Euglen ; 
the Hon. Archibald Douglas of that Ilk; Patrick 
Heron of that Ilk, and several other distinguished 
and respected names. The list numbers 136 in all, 
and embraces men of " rank and fortune," lawyers, 
merchants, shopkeepers, etc., but no bankers. 

The advent of this great company was the occasion 
of general congratulation, of which the following may 
serve as a specimen : " The utility and advantage of 
a Bank of this kind to the country is too obvious to 
require any commentary. Its influence upon the 


commercial part of this nation, the evident tendency 
it must have to forward the improvement of the 
country, and the aid and support which it must 
naturally afford to its manufactures, were the induce- 
ments of those concerned to establish it, and are the 
benefits expected to be derived from it events wished 
for by all who are lovers of their country." This 
was a euphonious, perhaps inspired, declaration of the 
origin of the bank, which is more plainly and authori- 
tatively described by Sir William Forbes. " Some of 
the houses which carried on the banking business in 
Edinburgh, having embarked in extensive speculations 
for the purchase and cultivation of lands in the newly 
acquired West India Islands, required a larger capital 
than their own resources could command. To this must 
be added, the rage which then began to take place for 
building larger and more expensive houses than had 
been customary in Edinburgh before the plan of the New 
Town was set on foot ; and larger houses led to more 
extensive establishments, as to furniture, servants, and 
equipages. At the same time those projectors and 
improvers, flattering themselves with the prospect of 
the immense advantage to be derived from their 
speculations, launched into a style of living up to 
their expected profits, as if they had already realised 
them. Such causes combined had induced those 
gentlemen to have recourse to the ruinous mode of 
raising money by a chain of bills on London ; and 
when the established banks declined to continue a 
system of which they began to be suspicious, the Ayr 
bank was erected." 

On 6th November 1769, the head office was 


opened at Ayr, and soon afterwards branches were 
opened at Edinburgh (in Canongate, 31st January 
1770) and Dumfries. Each of these offices exer- 
cised independent powers in the conduct of business, 
under separate boards. Agencies were established 
at Glasgow, Inverness, Kelso, Montrose, Campbel- 
town, and elsewhere. Among the partners were 
many members of trading firms, who immediately 
secured for the new bank an extensive advance 
business. Indeed so large were their demands, and so 
accommodating were the directors, especially at Ayr, 
that the coffers of the company were speedily emptied. 
This circumstance, however, occasioned no uneasiness. 
When the capital and deposit money were exhausted, 
they had an inexhaustible treasury from which to 
feed the insatiable demands of their customers. They 
had paper money " for the makin'," and they proceeded 
to manufacture it right heartily. Before long, how- 
ever, their inexhaustible treasury began to manifest 
symptoms on which they seem never to have cal- 
culated. The notes came back on them for payment 
almost as quickly as they were issued. The directors 
had little specie to pay them with, and the partners 
were paying up the periodical instalments of their 
subscriptions in an unsatisfactory manner. Difficulty, 
however, is the opportunity of genius. A banker of 
merely average ability would, in such circumstances, 
restrict his advances and endeavour to replenish his 
cash reserves. But the directors of the Ayr Bank, 
like those of two long -to -be -remembered Glasgow 
banks, breathed the upper strata of the economic 
atmosphere. Their mission, like that of their pre- 


decessor, John Law, and the typical modern American, 
was that of the " eye-opener " ; and it must be ad- 
mitted that if, in a purely literal and technical sense, 
they failed, in another and hardly less literal sense, 
they achieved their object a couple of years later. 

Instead of contracting their business as they 
ran out of funds, they increased their engagements. 
To provide themselves with funds, they arranged with 
certain firms in London to accept bills on their 
account at a commission ; and with their notes they 
purchased bills of exchange on London from the Edin- 
burgh bankers to replenish their account with their 
London correspondents. Thus assisted, and aided by 
a call of 20 per cent on the shareholders, the affairs of 
the company proceeded pretty smoothly for some time 
during the year 1770, though the London debt stood 
at 85,000. Bills maturing were met by renewals, 
which were readily granted, as the commission was 
tempting, and the liability of a wealthy proprietary 
was unlimited; and further requirements were similarly 
provided for. But early next year the London debt 
assumed a threatening aspect. Dimsdale & Co., the 
London correspondents, refused further assistance. A 
deputation to London, however, overcame obstacles 
and arranged for further credits. Meantime the 
management went from bad to worse. Irregular 
advances were made to privileged individuals; the 
circulation of notes was forced by means of paid 
agents scouring the country for specie and notes of 
other banks ; the affairs of the company were repre- 
sented to the shareholders as in a flourishing condition; 
and a dividend was declared in May 1771. The 


business of John Macadam & Co., bankers in Ayr 
(the Air Bank), was purchased on 1st January of 
that year for 18,000; and, on the following 29th 
October, that of Alex. Johnston, Hugh Lawson & Co., 
in Dumfries, was acquired for 7350. Neither of 
these houses seems to have been in a satisfactory 
condition ; and Johnston, Lawson & Co. were virtually 
insolvent. Meanwhile the capital had been increased 
beyond the originally designed 150,000, the old 
directors were regularly re-elected, and affairs went on 
in the usual way. 

In May 1772, the directors began to realise the 
gravity of the situation, and resolved on retrenchment. 
But the opportunity for such a course had passed, and 
irretrievable ruin stared them in the face. Even if 
they had had the moral courage (which they had not) 
to put their resolution into force, their power of 
doing so was gone. They were so hopelessly involved 
in the web they had themselves woven, that they 
could only passively submit to the fate that awaited 
them in a few weeks. Their bills on London had 
rapidly augmented until they amounted to about 
400,000 ; they had more than 200,000 of notes 
in the circle, and 300,000 of deposits, and but small 
available funds. The Edinburgh banks had refused 
to hold their paper, and even their hitherto fertile 
genius was at last unable to devise an alleviation for 
their distress. They struggled on, nevertheless, and, 
aided by the general ignorance of their position, 
managed wonderfully to maintain their credit. 

But in the afternoon of Friday, the 12th of June, 
a horseman, in extreme haste, rode into Edinburgh. 


He had travelled from London in the extraordinary 
space of forty-three hours. The news he brought 
accounted for his speed. The banking house of 
Neale, James, Fordyce & Downe had failed, and 
dragged down other firms with it, from which a 
terrible panic had ensued. These were dire tidings 
for the financial houses of the Scottish metropolis. 
All, except the few who had preserved the even tenor 
of their way, unallured by will-o'-the-wisp dreams of 
suddenly-got wealth, read their doom in the message. 
To none must the news have had more purport than 
to the Edinburgh Board of the Ayr Bank, who, 
although not at the chief seat of management, were 
perhaps even more involved than the Ayr Board in 
maturing and carrying out the credit and exchange 
transactions. They had intimate relationships with 
most of the private banking houses in Edinburgh, in 
order to assist the floating of their paper. 

The first of these firms to collapse was Fordyce, 
Malcolm & Co.*, who stopped payment three days after 
the arrival of the news from London. Next day, the 
16th, Arbuthnot & Guthrie followed suit. These 
failures, and fears of more to follow, seem to have 
raised the first excitement to a considerable pitch. 
A rumour got abroad that the bills of the Ayr Bank 
were refused for discount in London. " Terrified with 
the apprehension that an immediate stoppage would 
be the consequence, the common people ran in crowds 
to draw specie for their notes ; and on Tuesday even- 
ing the following advertisement was handed about in 
Edinburgh : 'BANK OFFICE, CANONGATE, June 1 6, 1 772. 
Whereas the Branch of Douglas, Heron & Co., here, 


have for these two days past had an immense demand 
for specie, from the lower class of people, in exchange 
for notes, owing, as it is suspected, to some ill- 
grounded reports raised by foolish or malicious persons 
respecting said branch, a reward is therefore offered 
of one hundred pounds sterling, to any one who will 
discover the person or persons who have been con- 
cerned in raising such an infamous report ; the reward 
to be paid by Mr. Hogg, cashier, upon conviction of 
the offenders. For Douglas, Heron & Co., Tho. 
Hogg, cashier.' This advertisement, joined with the 
knowledge of the solid foundation of that company, 
in a good measure quieted the minds of people, 
and the ferment had greatly subsided. But new 
failures continuing to happen, the demands on them 
for specie became greater than ever." On the 24th 
June, the important firm of Wm. Alexander & Sons, 
with Gibson & Balfour, Andrew Sinclair & Co., John- 
stone & Smith, and Garbet & Co. all well-known 
houses suspended payment. 1 

The demands on the Ayr Bank had now become 
too great for their restricted treasury ; and on the 
morning of the 26th they issued the following 
circular: " AIE, June 25, 1772. The company of 
Douglas, Heron & Co., Bankers in Air, taking into 
their consideration the present state of the credit of 
this country, and the uncommon demands that have 

1 Sir William Forbes mentions (p. 42), in a list of firms which failed 
in consequence of the Ayr Bank collapse, an Anthony Ferguson. All 
the other names are those of bankers, and it may be that Ferguson 
was also engaged, more or less, in banking business ; but his name 
does not appear in other lists of Edinburgh bankers. Sir William 
does not, moreover, give his list explicitly as that of bankers. 


been made upon them for specie, owing to causes 
sufficiently well known, have come to a resolution to 
give over, for some time, paying specie for their notes. 
But as the country, who have received the most liberal 
aids from this company, cannot entertain the smallest 
doubt of the solidity of its foundation, it is hoped 
that, on occasion of a national emergency of this kind, 
the holders of their notes will not be under any alarm." 
The circular, which was signed by John Christian, 
cashier, proceeded to declare that interest at 5 per 
cent per annum would be allowed on notes remaining 
in the circle, for which a bond was duly executed on 
4th July succeeding. The Ayr office appears to have 
closed on 22nd June. 

Thus passed away in a thunderstorm, originated, 
or at least greatly aggravated (so far as Scotland was 
concerned), by their own actions, a great house who 
had promised much, and of whom much had been 
expected. Their hopes of resuming business speedily 
vanished amid the engrossing difficulties of providing 
for their outstanding liabilities. The Bank of England 
had refused assistance, they had probably enough 
on hand with their clients in London, for the crisis 
there was of the gravest nature, and they had already 
150,000 of Ayr Bank paper on their books, so 
the directors, who had been sent to London to 
negotiate a loan, were at their wits' end how to 
accomplish their mission, notwithstanding they had 
two noble dukes and many other influential and 
interested friends to assist them. Eventually they 
succeeded in raising 356,715 on most exorbitant 
terms, viz. at the rates of an annuity of 100 a 


year for life on payment of 700 or on two lives 
for 800, with the fortunate proviso of option of 
redemption at the purchase price plus a half year's 
payment. The total sum raised, as afterwards re- 
deemed under authority of a special Act of Parliament, 
was 457,570. 

These events were productive of much hardship 
to the public, for, although the shareholders of the 
Ayr Bank were, for the most part, well able to meet 
their losses, the failure of so many bankers produced 
a general distrust, which for a time paralysed the 
note circulation of most if not of all the banks. In 
this connection it is gratifying to note the position 
of the three public banks and the leading private 
bankers in Edinburgh. These, or at least the two 
old banks, had for some time previous to the crisis 
been expecting and providing for it. They had 
refused dealings with Douglas, Heron & Co., and had 
made ample provision for the catastrophe which they 
anticipated as the consequence of that company's 
proceedings. The result is recorded by Sir William 
Forbes. " Besides the Bank of Scotland, Eoyal Bank, 
and British Linen Company, which were established 
by public authority, the only private companies that 
continued solvent were Mansfield, Hunter & Co., 
William Cuming & Sons, and our own." From other 
records, it would appear that two or three individual 
bankers also survived the crisis; but it is probable, 
from the omission of reference to them by Sir 
William, that they temporarily suspended payment, 
or that their banking business was of small extent. 
" On Monday, [presumably the 29th June], a very 


smart demand for money took place on us all, just as 
had happened the preceding week in London [Black 
Monday, the 22nd]. This was a new and unexpected 
circumstance; but as neither our house nor any of 
those others had been engaged in the circulation 
carried on from Scotland, and were sufficiently pro- 
vided with funds to answer promptly all the demands 
that were made on them, the panic abated after two 
o'clock on Monday, and the public confidence in their 
solidity was restored." 

Glasgow and the provinces of Scotland suffered 
but little, in comparison with Edinburgh, in this 
crisis; as, with the exception of Douglas, Heron & 
Co.'s connections in Ayr and Dumfries, they were not 
involved in the fictitious exchange business to any 
great extent. The Merchant Banking Company of 
Glasgow, however, was forced to suspend payment on 
the 9th of July. They announced on that day that 
they would resume on the 9th of October, and they 
appear to have been able to do so sooner. As 
confidence was felt in their solvency, their notes, 
together with those of the other local banks, remained 
in free currency. Similar confidence was shown in 
other banks throughout the provinces. William 
Alexander & Sons resumed business in Edinburgh 
on the 13th of July; but whether they retained 
their banking as well as their mercantile business 
does not appear. 

It was a fortunate circumstance in connection 
with this crisis that an Act of Parliament, amending 
the bankruptcy laws of Scotland, had been passed 
just in time (the Koyal assent was given June 1772) 


to preserve the equality of rights of creditors in the 
numerous bankruptcies that occurred. Previously, 
creditors ranked by priority of arrestment, and thus 
debtors could give and creditors secure undue pre- 
ferences. The Act 12 Geo. III. cap. 72, abolished 
this system, and made several salutary provisions for 
securing the rights of creditors. 

At the time of stoppage, the Ayr Bank had a 
capital stock of 160,000, of which 130,000 was 
called up ; but, of course, the partners were unlimitedly 
liable for the debts of the company. The number of 
shareholders, shortly before the crisis, was 241. The 
total liabilities, including the capital, were not less 
than 1,250,000. These are specified in round 
numbers as capital stock, 130,000; private loans 
(deposits), 300,000; note circulation, 220,000; 
and current bills on London correspondents, 600,000. 
The assets consisted of (1) advances of various kinds 
at Ayr, Edinburgh, and Dumfries, amounting to 
694,175 : 19s. ; (2) advances at agencies which had 
been established at Glasgow, Inveraray, Inverness, 
Kelso, Montrose, and Campbeltown, 133,788 : : 11 ; 
(3) bills of exchange, principally held at Edinburgh, 
409,079: 7:2; making a total of banking debts, 
1,237,043 : 7 : 1 ; and (4) an unascertained amount 
of fixed capital, such as buildings and furniture in 
use for the business. Of the debts due to the 
bank, about 400,000 consisted of advances made to 

On 28th September following, the bank offices were 
reopened, but notes were payable in specie only at 
Ayr. At Edinburgh interest was paid on notes for 


the period of suspension, in specie when less than 20s., 
and in notes when amounting to that sum. For the 
convenience of holders of large notes, small notes were 
given in exchange. The Edinburgh banks and private 
bankers would not receive Ayr bank notes. The 
bank continued to struggle on in this fashion for 
nearly a year after resuming, but at a general meeting 
of the partners in August 1773, it was unanimously 
resolved to give up business. The liquidation was 
conducted in Edinburgh. Although the shareholders 
were well able to bear the strain of meeting the lia- 
bilities of the partnership, the losses were felt very 
severely. No less than 750,000 of landed property 
is stated to have been forced into the market through 
the failure of the bank, and the ultimate loss to the 
partners is estimated at 663,396 : 18 : 6. 1 

The shareholders were very indignant at the out- 
come of the brilliant essay at banking into which 
they had been drawn, and this feeling was much 
intensified when revelations were made of gross irregu- 
larities and reckless mismanagement. A committee 
was appointed to investigate the affairs of the com- 
pany; and their report, presented in August 1777, 
and subsequently printed as a thick folio volume, 
gives details which fully corroborate the accusations 
made, and forms a detailed history of the bank. 2 The 
book, although now but little read, is also valuable 
for the lessons it teaches. In almost all their trans- 

1 Scotch Banks and System of Issue, R. Somers, Edinburgh, 1873, 
p. 103. 

2 The Precipitation and Fall of Messrs. Douglas, Heron & Com- 
pany, late Bankers in Air, Edinburgh, 1778. 


actions, the directors appear to have acted in the 
wildest manner. Advances for the development of 
agriculture were made profusely far beyond the ability 
of the country at that time to sustain, and still further 
beyond the resources of the bank ; and worse still, the 
requirements of speculative customers were freely met 
by the discount of bills. As their resources failed, 
the directors pressed their notes into circulation, in 
the false hope that they would remain in the hands 
of the public. As they found that their notes came 
back upon them very speedily, they resorted to raising 
an ever-increasing amount of money in London by 
bills, until the amount of the London debt was so 
great that their credit in that quarter gave way. 
But worse than recklessness was proved against them. 
Privileged persons got advances either without security, 
or on worthless cash -credit bonds and bills, to the 
extent of 361,611:17:6. Even after the failure, 
mismanagement continued. The raising of money on 
annuities, to which we have referred, was conducted 
on ruinous terms, and it appears that some of the 
funds so obtained were misapplied in several cases, 
and a sum of 6220 was not accounted for. 

In reviewing this crisis, it is evident that much 
of its intensity was due to the unadvisable conjunction 
of mercantile with banking business, which had always 
been a prominent feature of private banking. It may 
be thought that an over-issue of notes was a leading 
feature in the failure of the bank. But this was not 
so. A vigorous and sustained effort at over-issue was 
made all along ; but the effort failed by the physical 
impossibility of making the public hold more notes 


than they required. The system of exchanges, more- 
over, expedited the return of the notes for payment. 
All the Edinburgh houses which fell, with the excep- 
tion of the branch of the Ayr Bank, were general 
traders and speculators, as well as bankers. Although 
Douglas, Heron & Co. were not directly engaged 
in mercantile pursuits, they were entirely under the 
influence of the mercantile spirit. Their existence 
began, and their business was conducted, in close 
alliance with merchant banking. The collapse of 
1772 effected a thorough revolution in this matter; 
and, although private banking again assumed a very 
active existence, its subsequent career witnessed a 
complete severance of the hitherto somewhat indis- 
tinctly defined departments of banking and commerce. 
The essential errors of the Ayr Bank were trading 
beyond their means; divided control by permitting 
branches to act independently ; forcing the circulation 
of their notes ; giving credit too easily ; ignorance of 
the principles of business ; and carelessness or iniquity 
of officers. 



THE crisis of 1772, which formed the subject of our 
last chapter, although sharp and disastrous in its 
immediate effects, passed off more quickly and easily 
than might have been expected. Several causes con- 
duced to this. The old banks, and the three private 
banking houses of Forbes, Mansfield and Cuming, who 
were almost the sole surviving representatives of what 
had been a large community of financial establish- 
ments, had foreseen and provided for the approaching 
catastrophe ; and, being themselves unentangled in 
the speculations and grotesque banking indulged in 
by Douglas, Heron & Co., and their clique, they not 
only themselves rose lightly on the wave of adversity, 
but were able to afford the necessary banking accom- 
modation to bona fide traders and the public. It was 
remarked at the time that the forbearance of creditors 
largely aided the recovery from the crisis; but this 
was only an unphilosophic way of stating that business 
was in the main sound, and that money was fairly 
plentiful. Coin, it is true, was scarce, but the notes 



of the public banks were in full credit. The crisis 
was essentially a banking one ; and although it was 
necessarily directly associated with trade, it would 
appear that that connection was, as far as Scotland 
was concerned, limited to a comparatively small section 
of the community. The resolution of the banks, in 
1773, to accept the notes of the Ayr Bank in pay- 
ments, when that establishment finally agreed to give 
up business, was a further assistance in the restoration 
of confidence. The harvest of 1773 was fairly good, 
the fisheries excellent, the cattle trade active, and 
money cheap. 

Hardly had affairs resumed a satisfactory aspect, 
when the dark cloud of war cast its shadow over 
the land. Complications with the American Colonies 
arose, and rapidly drifted into open rupture. In 
January 1774, hostilities commenced, which did not 
end until 1782, when the independence of the United 
States, who had formally thrown off their allegiance 
to their tyrannical parent six years previously, was 
acknowledged by Great Britain. Meanwhile the latter 
country was at war with France, Spain, and Holland ; 
had to sustain repeated reverses in India, at the 
hands of the victorious Hyder Ali; had to stamp 
out sedition and open rebellion in Ireland ; and had 
to check discontent and riots within its own borders. 
It does not concern us here to discuss the policy of 
the British Government during those events; but 
the events themselves are potent factors in the 
history of banking. The national expenditure had 
assumed enormous proportions; and although in- 
creased taxes were laid on the much-suffering public, 


the warlike and aggressive rulers of a commercial 
people year by year dragged their subjects deeper 
into debt. The American war alone cost 129 
millions sterling, besides the loss of 50,000 men. 
The financial result of the eight years of warfare, 
ending with the peace of January 1783, was that 
the national debt was increased from 136 to 238 
millions sterling, even after exhausting efforts to 
balance expenditure and income. 

Although Scotland had to bear her share of the 
burden of the national foreign policy, she, as usual, 
suffered less from its effects than her more wealthy 
and powerful neighbour. England being much further 
advanced in its social condition, relied greatly on its 
foreign trade, which was crippled by a state of war ; 
while Scotland, in its comparatively backward state, 
had enough to occupy its attention in the develop- 
ment of its agricultural and other industries. The 
scarcity of specie, moreover, from which it was a 
chronic sufferer, but which was aggravated by the 
foreign expenditure for military and political purposes, 
was largely counterbalanced by the readiness with 
which paper money circulated. For sums of 1 and 
upward there was practically no want of money, but 
it must be admitted that for smaller payments there 
was great lack of a medium. It would seem, never- 
theless, that about the year 1*7*76, loanable capital 
was more abundant, and the value of land vastly 
greater than at any former period. As regards the 
banks both corporate and private the national 
difficulties were actually a source of great advan- 
tage, as they readily invested in British Government 


securities, and Bank of England stock, at greatly 
depreciated prices, from which they realised large 
profits when these securities rose in value on the 
return of peace. So much was this the case, that 
serious accusations were made against them from 
time to time for diverting the funds, which should 
have been employed in the nourishment of the 
national industries, to stock-jobbing purposes. As Sir 
William Forbes explains the matter, however, they 
seem really to have been more shrewd and prudent 
in the management of their own affairs than neglect- 
ful of their public duties. 

Almost immediately after the collapse of private 
banking in Edinburgh, in 1*7 *7 2, it arose as a Phoenix 
from its ashes, renewed in vitality, and purified from 
the evils which had attached to its former condition. 
The houses of Sir William Forbes, J. Hunter & Co., 
and Mansfield, Hunter & Co., who were destined for 
a long and honourable career, and who, together with 
the firm of William Cuming & Sons, and presumably 
that of Thomas Kinnear & Sons, 1 had easily survived 
the trials which ruined their imprudent brethren, 
were not long left undisturbed by rivals. In 17*73, 
the firm of Donald Smith & Co. commenced business ; 
and three years later Robert Allan and Alex. Allan 
(they were not, if we are rightly informed, relations) 
established the houses which were well known in 
the earlier part of the present century, as Robert 

1 Sir William Forbes expressly says that, besides the public banks, 
only the three first-named banking firms continued solvent. We are 
unaware, however, of any other authority for supposing that the 
Kinnears suspended payment at that time. The house continued 
until 1834. 



Allan & Son, and Alexander Allan & Co. About 
this time the firms of Bertram, Gardner & Co., and 
Allan & Steuart, and one or two individual bankers, 
began their career. Win. Scott was in business in 
1778 ; John Wordie is included in a list of bankers 
in the same year ; and, as he was Dean of Guild in 
the Edinburgh Town Council previous to 1769, it 
is probable that his business was of older standing. 
It continued for a few years, but his name drops out 
of the roll in 1781; and, on 25th September 1782, 
his creditors were advertised to lodge their claims, 
in anticipation of a division of the proceeds of lands 
sold. He is designated " merchant " in the notice. 

In the provinces, a few new private banks were 
started. Mr. Hunter, who had been cashier in Ayr 
for Douglas, Heron & Co., founded (1773) the success- 
ful business of Hunters & Co., which exists still as 
the Ayr office of the Union Bank of Scotland. The 
Stirling Banking Company and the Commercial 
Banking Company of Aberdeen were formed soon 
afterwards (1777 and 1778). Sir Wm. Forbes, 
James Hunter & Co., took an important step in 
the development of their business at this time, by 
beginning, on 1st January 1782, to issue notes of 
their own house in the same manner as the public 
banks in Edinburgh. Previously they had used the 
paper of the Eoyal Bank, with whom they had a 
cash credit, and of which bank Mr. John Coutts was 
a director. During this period (1772-82) two bank- 
ing failures occurred, but they were not of much 
moment. We allude to the temporary suspension 
(20th August 1772) of John Fyffe, Edinburgh, who. 


was probably more an agent for country banks than 
a banker on his own account ; and the collapse (17*74) 
of the Merchant Banking Company of Glasgow, who 
had closed their doors during the difficulties of 1772, 
but who were resuscitated by the public spirit of the 
western metropolis. The creditors were paid in full. 1 
In 1774 the Bank of Scotland made a third and 
successful attempt to establish a branch system in 
the provinces. The localities first selected were 
Dumfries and Kelso. Next year an office was opened 
in Ayr; and shortly thereafter, their operations were 
extended to Kilmarnock, Inverness, Aberdeen, and 
Stirling. That at this time their funds were accumu- 
lating in their hands seems to be indicated by an 
advertisement they issued on 3rd May 1775, offering 
to lend money at Whitsunday on heritable security. 
This loan, we are told, was soon completed. The 
improvement of the gold coinage also occupied the 
attention of the Bank at this time. That reform 
had been prescribed in 1773 (Act 13, Geo. III. 
cap. 71). That it was much needed is evident from 
the fact that, including both England and Scotland, 
it entailed a loss of upwards of one million sterling, 
300,000 of which fell on the holders of light coin. 
Silver coins, in sums of 25 and upward, were 

1 Boase is the only authority for their stoppage in 1774, when, 
he says, they were compelled to wind up. Somers erroneously 
indicates that they did not survive 1772. We find, however, that 
in a shipping advertisement in the Mercury of 10th July 1784, 
reference is made " to James Robertson, Merchant Bank, Glasgow" ; 
and they advertised on 30th August 1788 a forgery of their 1 notes, 
dated 2nd February 1782. If, therefore, they stopped again in 1774 
they must have resumed. The estate, however, was sequestrated. 


ordered to be taken at 5s. 2d. per oz. At the same 
time the Mint price of gold was fixed at 3:17:10^. 
The Bank of Scotland seems to have bought light gold 
at 3: 17s. per oz., which price they subsequently 
reduced to 3 : 16s. The Eoyal Bank was appointed 
to give out new coin for the light coin called in. 1 

By a second Act of Parliament, obtained in 1774, 
the Bank of Scotland was authorised to increase its 
capital from 100,000 to 200,000. It would 
appear that up to 1773 the amount of capital called 
up was 8 per cent ; and in that year " it was resolved 
to make a call for the remaining two-tenths of their 
capital not yet paid up, by which the bank will be 
enabled to give an aid more effectually to the country, 
now that Messrs. Douglas, Heron & Co. have given 
up the banking business." According to a pamphlet 
which appeared in 1778, but for the accuracy of 
which we cannot vouch, the Bank of Scotland at- 
tempted in a discreditable manner to acquire, through 
the agency of a private banking firm, a secret influence 
in the management of the Koyal Bank. Their mode 
of doing this was to enable their friends to purchase 
the stock of that bank in sufficient quantities. This 
plot, if it was actually ever laid, does not appear to 
have had any effect on the policy of the intended 
victim. But if one pamphleteer abused the Bank of 
Scotland, another who appeared about the same time 
was not less animated (although less effective) in his 
reflections on the Koyal Bank. About the same time 

1 Boase, p. 92. From a notice in the Scots Magazine, 1773, p. 443, 
however, the Bank of Scotland appears to have begun giving the 
Mint price on 20th August 1773. 


there was a rumour of a projected union between the 
two banks, which had perhaps some connection with 
the incident to which we have just referred ; but it 
does not appear that open overtures were made on the 
subject. It is more than probable that any desire 
which may have existed on the part of the Bank of 
Scotland for the accomplishment of this object the 
Koyal Bank appears to have been entirely passive in 
this drama never assumed a very definite shape. At 
this time an animated warfare was also being carried 
on between the Glasgow and Aberdeen bankers. 

We get a glimpse of the internal relationships of 
the banks at this time from the records of the Dundee 
Bank. 1 Wm. Cuming & Sons, their agents in Edin- 
burgh, had demanded a salary of 200 a year, with 
a commission of J per cent, besides interest, on any 
advance beyond 3000. They refused 150 salary, 
and ^ per cent commission on advances. Bertram, 
Gardner & Co., however, undertook the agency on 
these terms ; agreeing also to allow interest at 3 per 
cent, and to charge at 5 per cent, on the balance of 
the account, as it happened to be in favour of or 
against the Dundee Bank. Their position was not so 
good as that of the Cumings. They failed in 1*793, 
at which time they still retained the agency ; but, 
although they did not pay their creditors in full, it is 
probable that no loss occurred to the Dundee Bank, 
as the balances seem to have been running against 
the latter. As at this time the assets of the bank 
were little over 50,000, and the payments through 
the Edinburgh agents about 100,000 per annum, 
1 Boasc, p. 117. 


the terms look sufficiently liberal to occasion surprise 
that the Cumings should have been so stiff. 

With the advent of peace in January 1783, there 
dawned on Britain a period of comparative prosperity, 
during which mechanical science made considerable 
progress. The utilisation of steam as a motive power ; 
the improvements of Arkwright and others, on 
machinery for the manufacture of textile fabrics ; and 
the improvement in the means of communication 
throughout the country, by the regular organisation 
of mail-coach routes, and by the formation of canals, 
at once evidenced a material advance in the intelligence 
of the nation (of which the resolution come to a few 
years later to abolish the slave trade was one of the 
earliest fruits), and provided the means for carrying 
out their enlarged views. Alluding to this satisfactory 
change, the directors of the Royal Bank, in the course 
of an unfortunate rupture which occurred between 
them and an important private banking house some 
thirty years later, make the following statement: 
" The fact is, that during the times to which Messrs. 
Ramsays, Bonars, & Co. allude, more especially from 
1783 to 1792, the circumstances of the country 
underwent a more favourable change than they had 
ever done in so short a period at any former time. 
The improving agriculture and trade of the country 
at this time required a much greater circulation. 
Hence the banking business became more profitable, 
and the Royal Bank among others shared in the 
prosperity of the times." During the same period 
the average dividend of the Bank of Scotland, on an 
enlarged capital, was higher than for some time 


previously; and a great increase occurred in the 
amount of capital devoted to banking in Scotland. 
The latter movement appears to have been inaugurated 
by the Eoyal Bank, who, in March 1783, added to 
their original capital of 111,34*7 : 19 : 10^- a sum 
of 38,652 : : 1^-, thereby raising it to 150,000. 
In this year also they opened a branch in Glasgow. 

In June following they obtained their fourth 
charter, which authorised a further increase to 
300,000. This operation was carried out at Mid- 
summer, 1784. Under the authority of a fifth charter, 
dated 5th June 1788, they again doubled their 
capital. The former increases, and 100,000 of the 
increase in 1788, were made out of profits, without 
any payment on the part of the proprietors. In 
this connection the following contemporary newspaper 
notice is interesting : " The public will be happy to 
be informed that the Koyal Bank of Scotland has 
just obtained a new charter from the Crown, empower- 
ing the proprietors to double their capital. ... It 
will now be no less than 600,000, When it is 
considered how liberal this bank has been for these 
many years past, in the manner of transacting business; 
what facilities they have given to the landed, mercan- 
tile and manufacturing interests of the kingdom ; 
and how much they have done, on the present 
emergency, for the support of public and private 
credit, every person must rejoice at their prosperity, 
as it will enable them to do still more for the advan- 
tage, not only of the proprietors, but of the nation 
at large." 1 At Christmas 1793, the capital was 

1 Caledonian Mercury, 12th June 1788. 


further enlarged from 600,000 to 1,000,000, but 
without any transference from profits. 

The Bank of Scotland was not long in following suit. 
As we have already seen, they had doubled their capital 
in 1774. In 1784 they obtained their third Act of 
Parliament, authorising an increase from 200,000 
to 300,000. Only proprietors holding two shares 
or more were permitted to apply for the new capital. 
They were entitled to one new share for every two 
old shares held. This seems unfair to holders of 
single and odd shares ; but, although the terms of the 
notice are obscure, it would seem that holders could 
obtain the value of their proportions by transferring 
their right to subscribe. Subscription was limited 
to three months from 27th July 1784. A call of 20 
per cent was made, payable 15th December. In 
1792 they got a fourth Act to permit an addition 
of 600,000, and in 1794 the capital was further 
raised to 1,000,000. Unlike the Eoyal Bank, 
however, the subscriptions were not fully called. How 
they amalgamated the original 100,000, which, as 
we saw, was fully called, with the subsequently created 
capital, does not appear; but it is probable that the 
20 per cent called in 1773 was repaid to the stock- 

But it was not only in Edinburgh that long steps 
in the development of banking were being taken. 
Although on a much smaller scale, the provinces also 
were making decided advances. Full details regard- 
ing the country banks are awanting ; but the following 
particulars relating to the Dundee Banking Company 
are significant. In 1784 the paid-up capital was 


increased, out of profits, from 8560 to 10,700; 
in 1786 a call was made, raising it to 21,400; 
and in 1794 a further addition was made, which 
raised it to 31,700. About three-fourths of the 
last -mentioned sum was, however, partly repaid to 
the partners, and partly written off as lost, and it 
was not until 1839 that this decline was fully 
made up again. The profits, during the period 
with which we are dealing, do not seem to have 
kept pace with the increase of capital. It may 
be presumed that other provincial banks contributed 
a share in the increase of banking capital; but, at 
any rate, there was a striking tendency to the erection 
of new banks. The Paisley Banking Company was 
established in 1 7 8 3 ; the Merchant Banking Company 
of Stirling in 1784 ; the Greenock Banking Company, 
and Andrew, George & Andrew Thomson, a small 
banking house in Glasgow, 1 in 1785; Campbell, 
Thomson & Co., Stirling, 6th January 1787; the 
Falkirk Banking Company in 1787; the Paisley 
Union Bank Company in 1788; the Dundee Com- 
mercial Banking Company, and the Leith Banking 
Company, in 1792. 

At this time a somewhat curious advertisement 2 

1 This firm were the victims of a remarkable robbery narrated in 
Banking in Glasgow, p. 16. " On Friday night, 29th October 1791, a 
mahogany box containing 1600 in guinea and twenty shilling notes 
of Messrs. Thomsons' issue, and twelve bills, which had been put in 
a small sack, and sent on a carrier's cart from Cumnock to Glasgow, 
was stolen in going along the streets. A reward of 200 was 
advertised, and 'no questions asked.' On the 17th November 
following, the box was found in a dunghill in Saltmarket. It had 
not been opened. The reward was paid to the lucky finder." 

2 It appeared in the Caledonian Mercury of 27th November 1784. 


was issued by the Stirling Banking Company which 
is interesting as throwing a sidelight on the cir- 
cumstances of the period. It is as follows : " The 
Directors of the Stirling Banking Company think it 
incumbent on them to give this notice to the public, 
That of late, some notes, dated at Stirling, and 
signed by Eobert Belch and James Drysdale, have 
appeared, and probably may be artfully passed upon 
simple people, by some interested persons, for notes of 
the said Banking Company, which must be considered 
not only as an imposition on the public, but also an 
injury done to the said Company. No public intima- 
tion of those concerned in the business has been given, 
nor of any bond of security to the public being lodged ; 
but it is reported that the company for which Eobert 
Belch acts, consists of a Country Schoolmaster near 
Glasgow, and a Farmer at Calder, who, it is said, has 
absconded. The business is in the hands of some boys 
who are minors, and not answerable for their trans- 
actions. The Directors therefore give this notice to 
put people on their guard, and appoint their Cashier 
to get this advertisement inserted in the public 
papers, and to sign the same. 


"STIRLING, 25th November 1784." 

Of course, none of these banks were corporate 
bodies ; for at that time, and for many years there- 
after, the only way of obtaining corporate privileges 
was by obtaining the special consideration of the 
Crown or of Parliament. They were all, therefore, 
private partnerships ; but most of them were on the 


joint-stock principle, having a definite amount of 
transferable capital divided into shares. Some of 
them, however, were nothing more than banking firms, 
consisting of a very few individuals, although taking 
a local designation. The only banking corporations 
existing at that time were the Bank of Scotland, and 
the Eoyal Bank of Scotland. The British Linen 
Company, although also a corporation, and actively 
carrying on banking business, were not nominally 
authorised to act as bankers until 1849. It is 
worthy of notice, in connection with the chronic 
agitation regarding the rights and privileges of banks, 
that the essential difference between the old banks as 
public corporations, and the new banking companies 
as private partnerships, was, until comparatively 
recent times, invariably taken for granted. When, 
however, incorporation became attainable by simple 
registration under a general statute, the distinction 
was to a large extent lost. The subsequent growth 
of the younger banks, to dimensions similar to those 
of their older rivals, has now almost obliterated the 
distinction to all but those who have carefully studied 
the subject. This leads many to assert, that the old 
banks have had special privileges conferred on them. 
The truth is, that the old banks started under the 
only conditions that were possible at the time they 
were formed. Since then they have grown in 
proportion to the progress of the work they com- 
menced and carried on to the benefit of the public ; 
but they have not otherwise altered, nor have they 
had any further special privileges conferred on them. 
The change which has taken place is entirely on the 


part of the other banks, who have, from time to time, 
reaped the benefit of subsequent legislation, which 
has gradually extended to them all, or nearly all, the 
advantages which could only be bestowed formerly by 
the special interposition of the sovereign individually, 
or by concurrence with the legislature. It is not 
out of place here to refer specially to the question 
of limitation of liability of members of corporations, 
for contemporary records are full of references to 
the subject. These references, however, are never 
connected with any questioning of what is now a 
sometimes debated point. They never have any other 
phase than simply pointing out the difference exist- 
ing, in this and other respects, between the " public 
banks " and the " new banking companies," for so 
they were usually respectively designated. 

The profitableness of the banking business at this 
time is indicated by the high value of Eoyal Bank 
stock, 900 of which, with the benefit of the new 
subscription, sold in April 1784 at from 375 to 
393 per cent. " This is by far the greatest price 
ever given for any bank stock in this country." 1 

1 Mercury, 12th April 1784. 



AMONG crimes connected with banking in Scotland, 
forgery of the notes of the various banks appears to 
have been the favourite. So far as one can judge, 
however, practice did not make perfection; for the 
imitations do not seem to have been clever, and 
many of them must have been clumsy work, hardly 
calculated to deceive any but the most ignorant people. 
But, perhaps, in those days, that class of person, 
common enough at all times, formed a considerable 
portion of the community. Forgeries began soon 
after the first issue of bank notes; but the period 
during which the crime was most common appears to 
have been the second half of the 18th century. The 
first quarter of the 19th century was also, however, 
an active time in this special industry. On detection, 
the culprits were dealt with in the drastic fashion of 
the good old times. The usual penalty was hanging ; 
but that sentence was sometimes modified to whipping 
and transportation for life. It need not be supposed 
that this alternative was dictated by the " quality of 
mercy." There is more reason to suppose that the 



physical condition of the prisoner would influence the 
judgment of the court, whether he should patriotically 
die for or " leave his country for his country's good " 
as a prospective sturdy labourer in his Majesty's 
plantations. It is noticeable that the forgeries were 
almost, if not entirely, confined to the small notes. 
While the number of forgeries was large, it does not 
appear that either the banks or the public suffered 
heavily by them. 

We are indebted to the writer of the Historical 
Account of the Bank of Scotland for the earliest 
notices of forgeries. The first of the four cases he 
mentions occurred about the end of February 1700. 
" One Thomas Macghie, who was bred a Scholar, but 
poor, of a good Genius and ready Wit, of an aspiring 
Temper, and desirous to make an Appearance in the 
World, but wanting a Fund convenient for his 
Purpose, was tempted to try his Hand upon Bank- 
notes. ... By artful Eazing, he altered the Word 
Five, in the Five Pound Note, and made it Fifty." 
But the " Check-book and Eecord " were so carefully 
kept that the villany was soon discovered. The 
villain himself, however, escaped to try his aspiring 
scholarship in foreign countries. 

"In September 1710, one Kobert Fleming, a very 
poor Man, who taught an English School at Hamilton, 
was taken up for cheating some poor People with 
Twenty Shilling's Notes, all wrote with his own 
Hand, and a dark Impression made like the Seal of 
the Bank. He was prosecuted for the Forgery ; and 
on his own Confession found guilty, and condemned 
to Death; but, having been reprived by Her late 


Majesty several Times, and at last during Pleasure, 
he after Her Majesty's death obtained a Kemission." 
What inspired Queen Anne's great clemency on 
this occasion does not appear. 

A new forgery of 20s. notes appeared in January 
1723; "but tho the Directors took all Pains to dis- 
cover the Author, and that they had Jealousy of 
some, yet they could never fix upon any particular 
Person as guilty." 

Another forgery of 20s. notes was discovered about 
the middle of November 1726. Before announcing 
the forgery, the bank got a " List of all the Engravers, 
and such as keep Tailliedouce Printing-Presses in and 
about the City, and obtained a Warrant from my 
Lord Justice-clerk for a Search." The search, how- 
ever, discovered nothing. " But on Sabbath Evening, 
25th December said year, Information being brought 
to the Secretary of the Bank that there was good 
Ground to believe, that one John Currie, a Book- 
binder, was the Forger, at least accessory and privy 
thereto ; and a Bit of Paper being shown him, which 
Currie's servant found in his Work-house, with an 
Impression on it ... of these Words BANK OF 
SCOTLAND he was thereby convinced." Further search 
supplied more evidence. Currie was arrested, and 
eventually confessed to "having done the whole 
Forgery." His trial, however, had seemingly not 
been concluded at the time our author wrote, for 
he closes the incident by remarking, "But whether 
Currie will be subjected to the Pain of Death, or an 
arbitrary Punishment, I cannot say." 

The absence of a special chronicler occasions a 


hiatus of twenty-one years in our record ; for there 
is but little reason to suppose that that period was 
unmarked by experiences similar to those immediately 
preceding and following it. 

The next case of which we have details is that of 
Archibald Currie, a wright, who was tried, in 1747, 
by the Court of Session for forging notes of the Eoyal 
Bank, and, being remitted to the Justiciary Court, 
was, on his own petition, with consent of the Lord 
Advocate, ordered to be banished to the plantations, 
with certification that, if he return, he shall be 
whipped monthly till retransported. Three years 
later, John Young, who had been "a serjeant in 
Col. Eich's foot " (as he is concisely designated), was 
executed in the Grassmarket, Edinburgh, for " forging 
and fabricating " notes of the same bank, and " utter- 
ing them as true." Some months afterwards a 
fellow soldier and accomplice was allowed to elect 
banishment to New England, with the usual notice 
of the welcome which would await him should he 
give way to home -sickness. He loved his country, 
however, not wisely but too well ; for we find that 
he was again apprehended in Edinburgh and duly 
whipped through that city. 

There is record, without particulars, of "a pre- 
cognition at Banff, in 1765, about a vitiate Note of 
the Dundee Bank." An advertisement regarding a 
forged note of the British Linen Company appeared 
that same year ; during which also there was a 
prosecution of a James Baillie, in Dundee, who was 
pilloried and transported for forging bank notes. The 
Thistle Bank notes appear to have been repeatedly 


forged; for, in 1768, what is described as "another 
forgery " was discovered, for which offence Win. 
Herries, Ayr, was taken up on suspicion, tried and 
hanged. Mr. Boase states that he had issued 452 
1 notes, and had in his possession 9677 more, which 
were burned after his trial. In 1774 both the Bank 
of Scotland and the British Linen Company advertised 
forgeries of their notes, and offered 100 rewards for 
discovery of the offenders. The subjects were the 
guinea and 1 plates respectively. Next year there 
was a curious case in London, when Thomas Bell was 
charged with intending to forge notes of the Bank 
of Scotland. It is said that he got paper made with 
the bank's watermark, and asked an engraver to print 
the notes. The latter, however, being as canny as the 
Scot, made a preliminary inquiry which stopped the 
game. The prisoner was, however, acquitted. 

The Koyal Bank guinea notes were forged in 1776; 
and, a few years later, the same denomination of the 
Bank of Scotland was similarly treated. For the 
latter crime, David Eeid, merchant in Manchester, 
was arrested, and, after a prolonged trial in the Court 
of Session and High Court of Justiciary, in Edinburgh, 
found guilty. The execution took place in the Grass- 
market, 13th September 1780, on which occasion 
he made a full confession, delivered a long and solemn 
warning to the crowd, and generally conducted him- 
self in a manner which is stated to have been " decent 
and becoming in a very uncommon degree," concluding 
with particularly appropriate devotions. 1 Next year 
another forgery of the same bank's guinea notes was 

1 Caledonian Mercury, 24th June to 13th September 1780. 


dealt with at the trial of a journeyman watchmaker 
from Falkirk, John Brown. The jury found it proven 
that he engraved the " brass plate," but not proven 
that he adhibited the subscriptions to, or issued any 
of the three notes produced. The judges "anim- 
adverted very severely on the verdict, but," pursues 
the recorder, 1 " the jury bore it with truly Christian 

"We now come to a case in which one is apt to feel 
that the prisoner got more justice than mercy. The 
culprit, John Macafee, was an ignorant soldier of the 
77th regiment, then quartered in Ireland, and appears 
to have become the tool of some Irish blackguards. 
He was apprehended at Campbeltown, in 1782, for 
passing four forged notes in imitation of a British 
Linen 1 plate of 13th May 1*7 7 4, the date being 
altered to 1776. He confessed that he was employed 
by people in Ireland who professed to have success- 
fully committed forgeries on several of the other banks 
in Scotland. What is specified as " a bundle " of the 
forged notes, which he had got a boy to secrete, was 
found. The paper was coarse and ill-coloured. " We 
have seen one of them," says the narrator, 2 " and do not 
think the Public run any risque of being deceived by 
them." Macafee was tried at the circuit court at 
Inveraray, before Lord Gardenstone. The jury, by a 
majority, found him guilty of the forgery or being 
accessory to it (the former proposition was quite 
improbable) and, unanimously, of issuing the four 
notes ; which verdict the judge reported to the High 

1 Caledonian Mercury, 10th, 12th, and 14th March 1781. 
2 Ibid., 6th July 1782. 


Court at Edinburgh. After a careful consideration of 
his case, he was sentenced to be hanged ; and, six 
months after his capture, was executed in the Grass- 
market, in a spirit of contrition and resignation. 

A forgery of the 20s. note (2nd May 1781) of 
the Aberdeen Banking Company was discovered in 
1783, the notes being uttered in Paisley. In the 
following May a man named Steven, and his two 
sons, were tried at Glasgow for the crime. They 
escaped, however, owing to "a principal evidence" 
not having come from Ireland, while they were 
" running their letters " (the Scottish form of habeas 
corpus), which ran out the day after the trial. The 
father and the eldest son were, however, recommitted 
for theft. 1 The sequel to this incident is striking. 
The " principal evidence " was an accomplice, Thomas 
Moreton, who had decamped. He appears to have 
been murdered a year or two later, and one of the 
younger Stevens, Thomas, was hanged at Glasgow, 
in 1785, as the culprit. He persisted to the last 
in denying the crime. He walked to the place of 
execution dressed in black clothes, with " weepers " 
and a crape hat -band; and his body was delivered 
to Professor Hamilton for dissection. This was the 
ninth execution in Glasgow within twelve months. 

The guinea note of the Bank of Scotland was again 
the subject of forgery in 1784. It was dated 1st 
March 1780, and appears to have been a good imita- 
tion. But the paper was common, and there were 
several small differences from the original. The Bank 
offered a reward of one hundred guineas. Either the 

1 Caledonian Mercury, 17th May 1784. 


same or another forgery of this note appeared the next 

At this time there seems to have been much 
counterfeit copper in circulation, which occasioned a 
prevalent refusal of halfpence, to the great incon- 
venience of the poor. By an advertisement, 1 thirty 
Edinburgh merchants intimated their intention to 
accept all genuine halfpence, but no larger payment 
than 5 |-d. in copper at a time. Along with this 
appeared a supporting notice by the magistrates. The 
Procurator Fiscal at the same time warned persons 
refusing " halfpence of his present Majesty's [George 
III.] coin" that they are bound to receive such in 
payments up to the amount stated in the statutes, and 
that they will be prosecuted for refusal " Similar action 
was taken by the shop-keepers of Leith, who had at 
first resolved to accept only the Old Scots halfpence, 
King William's, and those of Kings George I. and II. 
Notwithstanding all exertions, however, the poorer 
people were so alarmed that they refused George III. 
halfpence in payments or in change, and penalties had 
to be repeatedly inflicted before the erroneous notion 
that all these were bad could be removed. 

In this year (1*785) Neil M'Lean was executed at 
Glasgow, in the Castle Yard, for uttering forged notes 
of the Glasgow Arms Bank. We are told that "he 
appeared penitent, and went to the place of execution 
with great composure, but laboured under a miscon- 
ception of the nature of his crime." What the mis- 
conception was we are tantalisingly not informed ; but 

1 Caledonian Mercury, 23rd February 1785. For further particulars 
see Scots Magazine, 1789, pp. 202 and 256. 


if, as seems probable, M'Lean was an illiterate High- 
lander, he might not understand the Sassenach's meta- 
physical distinction between good and spurious pieces 
of printed paper ; and perhaps felt that a less severe 
penalty might have sufficed. 

Another imitation of the British Linen Company's 
1 note, dated 2nd August 1781, and another of 
their guinea note dated 1st August 1683 [sic, but 
presumably meant for 1783], appeared later in the 
year. " They were both wholly done with a pen, and 
written on common paper, whereas the real notes, 
except the number and names, are all copper -plate 
impressions printed on the Company's own paper 
bearing the water-mark British Linen Co. on the 1 
notes, and B. Linen Co. on the guinea note." The 
usual reward, one hundred guineas, was offered, but 
we hear of no result. 

A somewhat serious forgery of another kind was 
discovered about this time in Edinburgh. Thomas 
Mercer, a writer, got three bills of 20 each discounted, 
one at the Bank of Scotland, another at the Eoyal 
Bank, and the third at Forbes' Bank; all of which 
were subsequently found to have been forged by 

Hunters & Co., Ayr, advertised a forgery of their 
guinea note in 1789. " The note is dated 1st August 
1781, the written figures in the date and number 
were very ill done, the features of the impression of 
the king's head are very unlike the original; it is 
printed on thinner and coarser paper, of a bluish 
colour, and without any water-mark, by which it is 
easily distinguished from the real notes of the Com- 


pany." l The usual reward seems to have failed to 
discover the authors. 

An unsatisfactory case also occurred in this year. 
At a fair in Kilmarnock a countryman sold his horse, 
and when he was to receive payment he objected to 
the most part of the notes offered. The purchaser, 
thus challenged, stept to the door, and did not return. 
The notes, which purported to be the guinea issue of 
the Paisley Bank, proved to be forgeries. John Brown, 
a farmer in Ayrshire, being suspected of the offence, was 
committed to jail ; but there seems to have been some 
doubt of his identity with the impostor. He was, how- 
ever, sentenced to be hanged at Glasgow, which fate 
he met with great firmness and devout behaviour. 2 

Early in 1790, William Kobertson was tried for 
forgery, or uttering knowingly a guinea note of the 
Bank of Scotland, and attempting to utter another. 
He pleaded guilty, and, as a mitigated punishment, 
owing to his confession, was sentenced to be " banished 
beyond the seas for fourteen years, and to suffer death 
without benefit of clergy, in case of his returning 
before the lapse of that time. " Whether the sentence 
was carried out or not is uncertain, for it appears 
that he had to be sent to the Eoyal Infirmary, where 
the death with which he was threatened may have 
overtaken him, in which case let us hope that he was 
afforded all the consolations that man can permit or 

Forged guinea notes of the Glasgow Arms Bank 
appeared about this time. They were dated 1st April 

1 Caledonian Mercury, 19th January 1789. 
8 Ibid. 19th November 1789. Courant, 3rd May 1790. 


1784. The paper was of a coarser quality than 
the genuine, of softer texture, with a bluish cast 
in the colour. The ink was brownish, and there were 
other defects. For this crime Wm. Carsewell was 
tried. In 1*798, a number of notes purporting to be 
guinea notes of " The Company of the Bank of Aber- 
deen," a company which had no existence, were in 
circulation. By this artifice the accusation of forgery 
was avoided ; but, of course, it was a case of wilful 
imposition. As, however, the ingenious culprits were 
clever enough to preserve their incognito, the courts 
had no opportunity of discussing the interesting 
questions connected with their action. 

A rather absurd case is recorded by Mr. Boase. 
" On 25th August 1800, a forgery of the 5s. notes of 
the Dundee Commercial Bank, all executed with a 
pen, by one James Martin, was discovered. On the 
bank applying to the Procurator-Fiscal to prosecute 
him, . the answer was that the prosecution of such 
offenders was always left to the banks themselves. 
This the bank declined, on the ground that only 
eight notes had appeared, and these so badly done, 
that no person familiar with the genuine notes could 
be deceived by them." The annoyance caused by so 
many forgeries led to "an agreement being entered 
into by the Bank of Scotland and the Koyal Bank 
that if forgeries were attempted upon the notes of 
either of them, the trials should be carried on at the 
joint-expense of both these banks, and it is said they 
determined to let no offender pass against whom they 
could bring proof." 1 Forgeries of the guinea notes 

1 Scots Afagazine, 1800, p. 574. 


of both the Kenfrewshire Bank and the Commercial 
Bank appeared in 1822; and the Dundee Union 
Bank's 1 notes were forged in 1824; but no 
particulars are supplied regarding these cases. 

A specimen in the author's possession shows a 
well -executed forgery of the Koyal Bank 1 issue 
dated 1st December 1823. The heavy engraving 
is fairly good, but the lighter work is imperfect. 
The bank's seal is represented with considerable 
minuteness ; and the signatures, written date, and 
numbers are good and natural. The paper, however, 
is hard, unlike what is used for bank-notes, and does 
not show a watermark. This must have been a 
dangerous fraud, likely to impose readily on the 
public. Perhaps owing to this incident, we find a 
genuine note of 9th May 1832 of a totally different 
design ; while one of 9th November of that year 
again shows a change to what, in general aspect, is 
similar to the current issues ; the principal differences 
being that the custom of stating the amount in the 
body as " Twenty Shillings " was still continued, and 
the printing had not yet been changed to colour. 

There were many other forgeries, some of which 
were audacious and well executed, during the 19th 
century ; but we must rest content meantime with 
having dealt thus fully with what may be called the 
mediaeval period of Scottish banking. 


THE CRISES OF 1793 AND 1797 

THE Treaty of Paris, concluded between Britain, 
France, and Spain, in January 1783, inaugurated a 
period of ten years' peace. This was abruptly and 
terribly ended by the great French Eevolution, which 
appears to have been only the most hideous manifesta- 
tion of an almost world-wide disturbance in all depart- 
ments of the civilised economy. Great changes had 
taken place in men's views ; and with the progress of 
knowledge, and the increase of wealth, there spread a 
desire for liberty which rapidly developed into license. 
Comparatively isolated as Scotland was, it reflected in 
a marked degree the tendencies of the time. The 
rude and simple -living Scot had become luxurious 
as his wealth increased; and the vices of advanced 
civilisation manifested themselves in a corresponding 
ratio. This was particularly the case in Edinburgh, 
which had always been far ahead of the rest of 
Scotland. The city had spread out its borders to a 
large extent ; and with the exodus of the higher 
classes from their pent-up alleys and courts to the 
spacious streets and squares of the new town, a 



complete change occurred in the manners and customs 
of the citizens. Scotland, like the rest of the European 
nations, had awakened to a sense of its inherent power. 
It cannot occasion wonder that this social revolution 
was accompanied by excesses ; and it is matter for con- 
gratulation, that the natural good sense of the people 
kept them within comparatively moderate bounds. 

In our second last chapter we traced the rapid 
development of banking in Scotland, which accompanied 
this progress of the nation in material prosperity. It 
remains for us on the present occasion to bring down 
our narrative to the close of the century, which 
terminated with the consolidation of the empire as 
the United Kingdom of Great Britain and Ireland. 

In 1783, simultaneously with a large increase in 
their capital, the Eoyal Bank (who had refused in 
1780 a proposal to open a branch in Paisley) for the 
first time departed from their policy of confining their 
operations to the Metropolis, by opening an office in 
Glasgow. It would appear, however, that this desir- 
able and too long delayed operation was performed in 
a very humble manner. According to an interesting 
record of banking events in Glasgow, " their first office 
was on the one side of a small shop in ' Hopkirk's 
Land,' east side of High Street, five doors north from 
the corner at the Cross. Their agent carried on his 
ordinary business of a linen-draper on the other side 
of the shop. The rent paid by the bank was 2 : 10s. 
annually. The agent had been originally a herd- 
boy, afterwards a weaver in Paisley, Hamilton, and 
Cambuslang, thereafter a clerk to a silk-mercer in 
Glasgow, and at the time the bank employed him, 


he was, as already said, a linen-draper on his own 
account." l If this account of the commencement of 
their direct connection with Glasgow be correct, it is 
evident that they had no great faith in its success. 
Their subsequent policy in regard to branch extension 
shows a strict adherence to conservative views. It 
was not until the collapse of the Western Bank, in 
1857, that they adopted in earnest the theory of a 
branch system. 

With the exception of a slight panic which seized 
the depositors with private bankers in Edinburgh in 
1788 a consequence of several severe failures among 
corn merchants and distillers, with whom they were 
involved few incidents of importance fall to be 
considered until the year 1793. The private banking 
house of Seton, Wallace & Co. was established in 
Edinburgh in 1791. It does not seem to have 
existed for more than fifteen years, as the firm is 
not mentioned after 1805 ; probably owing to the 
death of Mr. Alex. Wallace on 12th June 1804. 
Bank stock seems to have commanded a high price at 
this time, as it is recorded in 1792, that "three 
shares of the capital stock of the Bank of Scotland, 
with the benefit of the new subscription, were sold at 
740, which is 246:13:4 a share. Besides this, 
the purchaser pays the auction duty, which makes it 
above 254 for each original share of 1000 Scots, 
or 83 : 6 : 8 sterling." About the same time the new 
stock of the Koyal Bank sold at 240 per cent. 

The rapid advance of the country in industrial 

1 Banking in Glasgow during the Olden Time, Glasgow, 1862 
p. 23, note. Also 2nd edition, 1884, p. 16. 


projects, to which we have already referred, seems to 
have proceeded with more activity than discretion. 
The political disturbances in connection with the 
French Kevolution, and the renewal of hostilities 
with France, gave a severe shake to the unduly 
extended system of credit. Numerous bankruptcies 
occurred throughout the country. These told heavily 
on the banks. This was more particularly the case in 
Glasgow, where the crisis led to the failure of the 
Glasgow Arms Bank (Murdoch, Robertson & Co.), and 
of the house of Andrew, George, & Andrew Thomson, 
which had been formed in 1*785. The former bank 
stopped payment on March 14th, with liabilities to 
the extent of 183,000. These were eventually met 
in full without interest. The failure of the Messrs. 
Thomson did not take place until 5th November. 
Their debts, which are stated at 64,564 by one 
authority, and at 47,000 by another, were ultimately 
paid in full. 

The private bankers in Edinburgh were greatly 
pressed for money. Sir William Forbes says, " The 
check to circulation, and the consequent demands for 
money, began to be felt by us, as well as by our 
neighbours, very early in the year 1793, and rose to 
such an alarming height as put the demands on the 
house that took place in the year 1788 totally out of 
remembrance." After referring to the failure of the 
Glasgow Arms Bank, and to the bankruptcy of " James 
Dunlop, of Glasgow, who was supposed to be one of 
the most opulent and cautious men of business in the 
West," he proceeds to state, that " on the 23rd April, 
the house of Bertram, Gardner & Co., of Edinburgh, 


also stopped payment, and to complete the confusion, 
the four banks of Newcastle, which were known to be 
opulent, were forced to shut up on the 12th April, 
owing to their not having had the precaution to keep 
in readiness sufficient funds to meet the demands that 
were made upon them. Their stoppage was accom- 
panied by that of a great many country banks in 
England." Sir William is, doubtless, correct in giving 
23rd April as the date of the stoppage of Bertram, 
Gardner & Co., but it is somewhat curious that their 
actual bankruptcy did not occur until 10th December 
following. Their creditors had granted a "deed of 
supersedere " under which, " followed by a very liberal 
subscription of guarantee in aid of the funds of the 
house," and the direction of a committee, they con- 
tinued to conduct their business. 1 Sanguine expecta- 
tions were, however, disappointed; for the firm failed 
again on 10th November, and were made bankrupt a 
month later. They were the only bankers in Edin- 
burgh who succumbed at this crisis. Their liabilities 
were about 145,000, of which their estates liqui- 
dated 17s. 6d. per . The provincial bankers seem to 
have all stood this trial. 

An interesting project, which unfortunately proved 
abortive, was formed about this time, for the establish- 
ment of a new bank at Glasgow. Kecognising the 
superiority of corporate banks over banking companies, 
its promoters proposed that it should be erected under 
Act of Parliament. It was to have been modelled on 
the constitution of the Bank of England ; but, had it 

1 Courant, 2nd May 1793. It is probable that the Merchant Bank 
of Glasgow also ceased at or about this time. 


been formed, it would probably have more nearly re- 
sembled the two Edinburgh banks. On 12th June, 
1793, just when financial affairs were assuming a 
more satisfactory character, a meeting was held in 
Glasgow to consider the proposal. The decision 
appears to have been favourable, and steps were taken 
to carry out the project. But, whether from want of 
sufficient support, or on account of the unfavourable 
condition of commercial affairs in the West of Scot- 
land, or refusal of Government recognition, or other 
impediment, the scheme fell through. This gives 
cause for some regret, for had the Glasgow Eoyal 
Bank for so it was to have been styled been 
actually established on the high-class footing which 
was sketched out, there is reason to believe that it 
might have been very successful, not only in a financial 
sense, but as fostering legitimate trade, and imparting 
a high tone to banking in the West of Scotland. It 
might have done much to mitigate, if not to avert, 
the consequences of the recklessness and speculative- 
ness which have always been too characteristic of 
banking as conducted in Glasgow, more especially, but 
also elsewhere, by banking companies dominated by 
the mercantile spirit. Nearly, we might almost say 
absolutely, all the banking disasters in Scotland can 
be clearly traced to too intimate a connection between 
the management of banks and the mercantile section 
of the community. Such a bank as was here designed 
would have been sufficiently independent. 

The continuance of the war with France and 
the dread of invasion were the immediate causes of 
another crisis in 1797. This was a more general 


disturbance than that we have just referred to. 1 A 
continuous and heavy drain of gold to meet expendi- 
ture abroad, and loans to foreign allies, had exhausted 
the bullion reserve of the Bank of England, and 
curtailed the metallic circulation throughout the 
country. The wants of the community led to 
extensive issues of local coins, tokens, and notes for 
small payments. Year by year the withdrawal of 
coin from the country had grown worse, prices had 
risen excessively, and at last the Bank of England 
was brought within a few days of stopping payment. 
Eoused to action by the representations, often repeated, 
of the Bank Board, the Privy Council, on 26th of 
February, directed the Bank of England to suspend 
payment in specie. On the following day, in accord- 
ance with this order, the Bank Directors issued a 
circular declaring " the affluent and prosperous 
situation of the general concerns of the Bank," and 
stating that they would continue "their usual dis- 
counts for the accommodation of the commercial interest, 
paying the amount in bank notes." The suspension 
of specie payments was confirmed by Parliament, and 
lasted until 1821. 

The news of this important event arrived in Edin- 
burgh on the 1st March, by an express sent to the 
Bank of Scotland. The demands on all the banks in 
Edinburgh for specie were continually pressing ; but 
they had hitherto maintained their ability to meet 
them. Now that access to the ultimate bullion 

1 It was not, however, in the so-called "decennial" series. That 
occurred four years earlier 1793 being in the true periodical rotation. 
The present was a currency crisis. 


reserve bad been cut off, however, it was imperative 
that they should protect themselves by immediate 
action of an unusual kind. Sir William Forbes 
supplies a graphic and interesting account of the 
proceedings which took place. It was generally 
believed that " the nation was ruined beyond redemp- 
tion." The public banks and private bankers met, 
and consulted with one another, " for all ceremony 
and etiquette of public or private banks was now out 
of the question, when it had become necessary to 
think of what was to be done for our joint preserva- 
tion on such an emergency." It was resolved to 
follow the example of the Bank of England by 
suspending all payments in specie. The local 
authorities supported this resolution, and information 
of the fact was sent throughout the country. Sir 
William adds, that "the instant this resolution of 
paying no more specie was known in the street, a 
scene of confusion and uproar took place, of which it 
is utterly impossible for those who did not witness it 
to form an idea." 

Another contemporary account states that, "in 
consequence of the measures adopted by the banks, of 
refusing to give out specie for notes, resolutions have 
been entered into by a great number of gentlemen to 
receive bank notes in all payments ; for this purpose, 
subscription papers lay open for several days in the 
Merchants' Hall. There seems little doubt that the 
great scarcity of specie in this part of the island is 
occasioned by the fear of an invasion, operating too 
powerfully on the ignorant and desponding part of 
the community. The responsibility of the Banks, 


joined to a renewal of confidence, from a short trial, 
will, we doubt not, set all to right very soon. While 
individuals hoard up, and deprive the banks of their 
usual supplies, it cannot be expected that they should 
exchange in their usual way. A little more liberality, 
in giving small sums to such as they know, we think 
would be right and proper." l 

One of the most distressing features of the situation 
was the want of small currency. For sums of 1 
and upward the bank notes were still available, but 
for smaller sums there was no medium of payment. 
The commonalty, and indeed the whole community, 
were thereby placed in a most painful situation. 
Tradesmen could not pay wages, and small purchases 
could not be made. People resorted to the expedient 
of tearing 1 notes into halves and quarters, a practice 
which appears to have been tacitly recognised by the 
banks. Eventually an Act was passed to permit 
banks to issue notes of less than 20s. value for a 
limited period. Under the provisions of this Act, 
the Bank of Scotland, Eoyal Bank of Scotland, and 
British Linen Company (who are specifically men- 
tioned), and all other banks or banking companies in 
Scotland, in operation, and issuing notes on or before 
1st March 1797, but no other persons, were empowered 
to " issue notes, bills, or tickets, in the nature of 
bank-notes, payable to the bearer on demand, for any 
sum whatever, under the sum of 20s. sterling." The 
banks were indemnified for having so issued before 
the passing of the Act ; but the powers of issue con- 
ferred by the Act were to cease on 15th May following. 

1 Scots Magazine, 1797, p. 212, 


By a subsequent Act the latter provision was extended 
to 5th July 1799. In accordance with the powers 
thus given, the three old banks, and probably many 
of the other banks, made an issue of 5s. notes, and 
the excitement gradually subsided. It does not 
appear that any other denomination of fractional notes 
was issued. Indeed, it is probable that the banks 
were reluctant to do more in this matter than was 
absolutely required in the public interest. For, while 
the expense of making these notes would be as great 
as for larger denominations, the profit from them 
would be proportionally smaller. 

The action of the Scotch bankers in suspending 
payment in specie was, of course, quite illegal, and 
any creditor could have prosecuted his claim for pay- 
ment in legal tender. The authority granted, or 
rather the order given, to the Bank of England did 
not extend to other bankers. It is noticeable, how- 
ever, that notwithstanding the public excitement 
which ensued on the promulgation of the resolution, 
no attempt was made to enforce claims by appeal 
to the law courts. It would appear, moreover, that 
while the notes of the Bank of England fell to a 
discount, the Scotch circulation always maintained its 
par value. In fact, after the first excitement had 
worn off, the public accepted the notes of the banks 
in an inconvertible form as readily as they had 
formerly done when they were exchangeable for specie 
on demand. Such a circumstance would be impossible 
now ; and rightly so, for an inconvertible note is 
essentially an abomination. But it was not ignorance 
on the part of the public that tided the banks over 


this dangerous epoch. It was that spirit of true 
national patriotism which, relying with confidence on 
the solidity of the banks, recognised that the action of 
the latter was occasioned by a common emergency, 
and called for the support and not for the opposition 
of their creditors. We now live under more selfish, 
if more logical conditions ; but to the repeated for- 
bearance of our ancestors in regard to the conduct of 
the Scotch banks, and to their sometimes overtaxed 
confidence in their respectability, Scotland owes no 
small part of its subsequent prosperity. Had our 
forefathers overturned the banking system whenever 
it went a little agee, the industrial life of the nation 
would have been subjected to repeated paralytic 
strokes, which would have dwarfed and stunted the 
national growth. 

It would seem that up to this period the impression 
of the duty stamps on bank notes, newspapers, etc., 
had to be performed in London ; for it is stated that, 
in September 1785, there was an agitation to have 
arrangements made for carrying out that part of 
revenue work in Edinburgh instead of requiring papers 
to be sent to London. The agitation was renewed in 
1805, and some time before 1812 the Edinburgh 
Stamp Office seems to have been authorised to impress. 
At least this may be inferred from the narrative of 
an unsuccessful attempt then made to exact new 
license dues on changes of partners in banking com- 




ON the first day of the first year of the last century, 
the United Kingdom of Great Britain and Ireland 
commenced its career as a consolidated constitu- 
tional empire. But, notwithstanding this great step 
towards peace and civilisation, there succeeded a 
period of fifteen years, during which the nation was 
engaged in exhaustive warfare with most of the 
nations of Europe, with the United States of America, 
with the native princes of India, and with the colonies 
and dependencies of European nations in various parts 
of the world. France, Kussia, Denmark, Sweden, 
Spain, Turkey, and the United States, were all 
grappled with severally or in combinations. But this 
does not indicate the total difficulties of the country. 
Trade, as was natural in such circumstances, was 
depressed and almost paralysed ; Ireland was openly 
disaffected ; great distress existed among the working- 
classes ; and, in England and Scotland, the corn-laws 
were made the occasion of serious and widespread 
disturbances and riots. Taxation was oppressive, and 



yet so insufficient to meet expenditure, that the 
national debt was increased to the extent of about 
200,000,000. The French War, lasting practically 
from 1793 to 1815, is estimated to have cost Great 
Britain 1,427,219,964. These events culminated 
in 1815, when the power of Napoleon was finally 
shattered, and the commercial equilibrium was re- 
established after the throes of a crisis which, if not of 
the first magnitude, was widespread in its incidence. 

The period was not, however, destitute of important 
features of a favourable character. If industry was 
depressed, the means for its improvement and exten- 
sion were considerably developed. Mechanical science 
continued to advance; so much so, indeed, that the 
supercession of manual labour by machinery occasioned, 
in the unfavourable state of the country, a bitter 
opposition by the working-classes, who imagined that 
their means of livelihood were being taken from them, 
and led to serious outbreaks of popular fury. In 
1812, moreover, steam navigation was inaugurated by 
the success of Bell's Comet on the Clyde. Thus, in a 
period of deepest gloom, one of the most potent 
factors in the development of commerce and the 
advancement of civilisation, was placed at the service 
of mankind. 

The crisis which closed the period which may be 
considered to have commenced about the middle of 
1797 appears to have been a gradual one, extending 
from 1810 for about five years. It fell with great 
severity on the English country bankers 141 
provincial banking houses being reported as having 
succumbed. This was doubtless due in great measure 


to the unfortunate state of banking legislation, which 
fostered a plurality of small firms, and prohibited the 
formation of large joint-stock banks. Scotland did 
not suffer to the same extent as England, owing to its 
comparatively backward condition giving scope for its 
industries within its own borders. 

As regards banking, this period was one of much 
activity. At least sixteen new banks were started ; 
and the Bank of Scotland and the Koyal Bank both 
obtained power to increase their capitals to one million 
and a half. Of the new banks, which date from 
1802, the most important is the Fife Banking Company, 
who commenced with a capital of 30,000, and after 
a career of a quarter of a century, collapsed in 1829, 
through mismanagement and dishonesty, entailing total 
loss, and liability for 5500 per share, on the partners. 
Another bankrupt born in this year was the Eenfrew- 
shire Banking Company. They managed, however, to 
pull on for forty years, when they made a disgraceful 
failure. The Cupar Banking Company was also formed 
in 1802, and is said to have retired from business nine 
years later ; but the dissolution of copartnership did 
not take place until 1820. The Falkirk Union 
Banking Company was another unfortunate venture. 
Established in 1803, with a capital of 12,000, held 
by fourteen partners, it existed for thirteen years, and 
was sequestrated on 1 8th October 1816. The liabilities 
were about 60,000. Malachi Malagrowther cites it 
as one of the few instances of bank failures in Scotland, 
and states that it " paid up its engagements without 
much loss to its creditors." Another authority, how- 
ever, states the deficiency at 10s. 6d. per . John 


Wardrop & Co. began business in Edinburgh in or 
shortly before this year, and dropped out of sight some 
twenty years later. At this time the affairs of the 
Dundee Commercial Bank having got into gross dis- 
order, the business was reorganised as the Dundee New 
Bank, on 14th January 1802, with a capital of 
58,000, in shares of 2000 each, of which one-tenth 
was paid up. It does not seem to have been a satis- 
factory concern during its earlier years. Its business 
was purchased by the Dundee Banking Company in 
1838. We should also mention David Paterson of 
Costerton, who at this time commenced a ten years' 
banking career which ended in sequestration ; and the 
Kilmarnock Banking Company, which was established 
10th June 1802. 

This rapid extension of banking naturally occasioned 
anxiety to the Edinburgh banks, who, in order to check 
it, intimated that they would not receive the notes of 
any new country banks that might be established. 
Either as the result of this opposition, or more probably 
from the circumstances of the country, the growth of 
new banks was somewhat restricted for several years 
subsequently. With the exception of a wretched 
attempt at Dumfries, where James Grace, with the 
assistance of his son and another partner, started the 
Dumfries Commercial Bank in 1804, only to succumb 
four years later with a deficiency of 10s. per , and of 
the firm of Belsh & Co. who commenced business in 
Stirling, in 1804, but failed two years later, only two 
banking houses, and those not of great importance, 
were established up till 1809. These were Inglis, 
Borthwick, Gilchrist & Co., in Edinburgh; and the 


Galloway Banking Co. of Douglas, Napier & Co. The 
former firm began business in 1805, and continued for 
ten years, when, on the death of Archibald Borthwick, 
13th July 1815, it became James Inglis & Co., who 
failed in 1834, with liabilities amounting to 23,000. 
The Galloway Banking Company, established in the 
following year at Castle-Douglas, was a more important 
firm ; but it had a career of only fifteen years, when 
it withdrew from business. The banking mania now 
broke out afresh. In 1809 the Dundee Union Bank- 
ing Company and the Glasgow Banking Company were 
started. The former, which subsequently amalgamated 
with the Western Bank, appears to have been somewhat 
energetic in the establishment of branches for, not 
content with eight offices in the immediate neighbour- 
hood of Dundee, it is recorded that the experiment of 
a branch in London was made, though without success. 
It had a nominal capital of 100,000, of which 
60,000 was paid up. It was absorbed by the Western 
Bank on 31st March 1844. The Glasgow Bank was 
an offshoot of the Dundee New Bank, and started with 
a fully paid capital of 100, 000. It afterwards joined 
the Ship Bank as the Glasgow and Ship Bank, and the 
conjoined business was, in 1838, merged in that large 
collection of banking companies, the Union Bank of 

The Glasgow Commercial Bank was established in 
1810, but it does not seem ever to have risen into 
much notice, and it ceased to do business in 1820. 
A more noteworthy production of the same year was 
the East Lothian Banking Company, whose head office 
was at Dunbar. It had a capital of 80,000. 


Malachi Malagrowther speaks of it as a company 
" whose affairs had been very ill-conducted by a vil- 
lanous manager." This model banker was William 
Borthwick, the cashier, whose career forms quite a 
romance of crime. The bank stopped payment in 
1822, with liabilities amounting to 129,191 : 16 : 7, 
which were subsequently met in full. 

The Perth Union Banking Company was also estab- 
lished in 1810. It amalgamated with the National 
Bank of Scotland in 1836. In 1812, the Caithness 
Banking Company was formed at Wick. It got into 
difficulties in 1825, and the business was taken up 
by the Commercial Bank. Another provincial bank 
was the Montrose Banking Company, established in 
May 1814, with a capital of 15,000. It was merged 
in the Dundee Union Bank in 1829. The private 
firm of Thomsons & Co. was established in Edinburgh 
in 1811, but it is probable that they may more 
properly be classed as financial agents than as bankers. 

By far the most important banking establishment 
which came into existence at this time was the 
Commercial Banking Company of Scotland. It was 
formed in November 1810, and was on the joint- 
stock principle, although not incorporated until some 
years later. 1 It has been remarked that it was the 
first bank not established by public authority which 
assumed the national designation implied in the addi- 
tion to its name proper a practice which has been 
followed to a large extent since. It was not long, 
however, in justifying its adoption of the designation, 

1 For some interesting details regarding the origin of this bank 
see Some Edinburgh Shops Josiah Livingstone, Edin. 1894, p. 64 etseq. 


for it speedily spread itself over the land with much 
spirit and success. Its comparatively large capital 
3,000,000 nominal, divided into 6000 shares of 
500 each, of which 2,250,000, with 450,000 
paid up, was issued at first enabled it to do this 
with ease. From the outset, it appears to have been 
designed on a large-minded plan, and to have met a 
decided want. The old chartered banks were not 
then, as now, banks of the general public. Their 
business was for the most part among capitalists 
small, doubtless, as well as large, but who, as financiers, 
were distinct from the body of the people. They 
occupied, to a considerable extent, a position similar, 
though of course on a much smaller scale, to that at 
present held by the Bank of England. They did, 
doubtless, as occasion offered, deal directly with the 
general public ; but the practice then was, for private 
individuals to transact their business with private 
bankers. The private Edinburgh firms were each in 
close sometimes, as we shall presently see, too close 
connection with one or other of the old banks. 
This arrangement had sprung up at a very early 
period, and had been always continued. It saved the 
banks both from danger and from trouble ; for the 
middlemen managed all the details of small deposits 
and discounts, and assisted in extending the circula- 
tion ; and it paid the private bankers (who were very 
like the modern bill discounters), for they exacted 
heavier terms from their clients than they were 
charged by the banks. 

The connection between the Bank of Scotland and 
the Koyal Bank on the one hand, and their respective 


sets of banking customers on the other hand, became 
more and more intimate, until partners of private 
banking firms not only got seats on the bank boards, 
but actually to a large extent controlled the proceed- 
ings of the latter. Business men then began to find 
it irksome to have to pass their business through the 
strait gate of the private bank, where toll had to be 
paid, as the only practical way of obtaining the benefit 
of the public banks' accommodation ; for they believed, 
rightly or wrongly, that the private banker would 
refuse at the board meeting to approve of paper which 
he would readily discount in his own office. It was 
one great feature of the Commercial Bank to counter- 
act this state of matters ; and accordingly it was made 
a rule of their constitution that no private banker 
could hold the office of director. This was practically 
the death-blow to private banking in Edinburgh ; for, 
although many firms continued to exist for years after- 
wards, the system was ever on the wane. The new 
establishment was very popular, but it was also very 
discreet ; for while it studied the best interests of the 
public, it imitated the wisest provisions of the old 
banks' practice. In short, the founders of the Com- 
mercial Bank evinced an amount of true wisdom, 
which, while it produced great advantage to them- 
selves, was at the same time largely beneficial to the 
general community. It must not be supposed, how- 
ever, that the new bank at once sprang into the 
position of a compeer of the old banks. It com- 
menced on a scale much inferior to their resources, 
and although it had public favour, it was destitute of 
the prestige and influence, and accumulated wealth, 


which placed the old banks in those days on a 
distinctly elevated platform. 

Another circumstance which aided the progress of 
the Commercial Bank was the practice of speculating 
in the Government funds which in the depressed 
state of the country fell to a very low price indulged 
in by the old banks. This was a very safe kind of 
speculation for persons who could afford to lie out of 
their money for an indefinite time ; as, with a declara- 
tion of peace, Government securities were sure to rise 
in value. But the banks were accused of yielding to 
the temptation to such an extent as to seriously neglect 
their duties towards trade. The Commercial Bank 
got credit for devoting due attention to this matter. 
There is good reason for believing that the competition 
of this bank had a good influence in bringing the old 
banks into more direct contact with the public, and in 
breaking down their rather selfish ideas of aggrandise- 
ment. They had relegated into the hands of private 
bankers, to an undue extent, those duties to the com- 
munity which they were erected for the purpose of per- 
forming, and were devoting their attention mainly to 
their own pecuniary interests. From this golden trance 
they were aroused by the advent of the Commercial 
Bank. It may have been partly owing to this circum- 
stance that the rate of interest on deposit receipts 
was raised from 3 per cent to 4 per cent at this time. 

The estimation in which the Commercial Bank 
was held during its earlier years is amusingly shown 
by a paragraph in a tract l dealing with the joint-stock 

1 Three Letters on the Speculative Schemes of the Present Times, 
and the Projected Banks." Anthony Romney. Edinburgh, 1825. 


excitement which culminated in 1825, in which the 
writer says : " In our own city [Edinburgh], every one 
admits that all the old chartered banks and private 
banking companies are just as liberal as any reasonable 
man could wish, and even the Commercial stripling, 
which, like all young folks, should at least not be 
rash, has never yet been accused of a close or niggardly 
spirit. On the contrary, Firebrass himself told me 
that he had never heard a single complaint uttered 
against that bank, excepting one, and that was for 
keeping a huge mastiff somewhere about their premises, 
which, with its vehement nocturnal bowlings, broke in 
upon the balmy slumbers of all the hypochondriacal 
nymphs and nervous soot-brokers in the neighbour- 

Lord Cockburn is even more complimentary to the 
new bank, but not so complaisant to the chartered 
banks : " The rise of the Commercial Bank marks the 
growth of the public mind. . . . No men were more 
devoid of public spirit, and even of the proper spirit 
of their trade, than our old Edinburgh bankers. 
Eespectable men they were, but without talent, general 
knowledge, or any liberal objects, they were the con- 
spicuous sycophants of existing power. . . . They all 
combined banking with politics. ... A demand for 
a bank founded on more liberal principles was the 
natural result of this state of things. Hence the 
origin of the Commercial, professing to be the bank 
of the citizens." 1 

The relationship which existed between the char- 
tered banks and the private bankers in Edinburgh is 

1 Memorials of His Own Times, Edinburgh, 1856, pp. 262-3* 


graphically illustrated by an incident which occurred 
early in the year 1816. This was a rupture between 
the Eoyal Bank and the private house of Messrs. 
Eamsays, Bonars & Co., who had for many years been 
their principal auxiliaries (although previously clients 
of the Bank of Scotland), two of the partners of the 
firm being at the time directors of the bank. It 
appears from the printed documents which were issued 
during the course of the dispute, that the majority of 
the directors accused the firm of unadvisedly availing 
themselves of their long and intimate connection with 
the bank to obtain, without proper authority, large 
advances. There never was any question as to the 
sufficiency of the security, but the irregular manner 
in which the loans had been obtained, and a supposi- 
tion that the firm were endeavouring to increase their 
already considerable influence in the direction of the 
bank's affairs, were made the basis of an appeal to the 
proprietors by the board. In their defence the firm 
state that " the account current of our house with the 
Koyal Bank rests on much stronger grounds than the 
form of applying for a credit, and obtaining it at any 
recent date from a board of directors. It rests on the 
best understanding and usage of near half a century, 
grounded on the close connection of having been of 
the greatest mutual advantage to each other for the 
last thirty -four years. . . . Mr. Eamsay, the senior 
partner of our house, . . . devoted his whole attention 
to the concerns of the Eoyal Bank, and placed it in a 
train of management that has produced greater pros- 
perity than, we believe, ever attended any chartered 
company in the same period [1781-1807] not ex- 


cepting even the Bank of England in proportion to 
their respective capitals." 

An important point in connection with this matter 
is, that the money so obtained was understood to be 
employed in purchasing Government stocks at a low 
price, with the object of realising them at an enhanced 
figure. Thus the money was not used for banking 
purposes. The directors do not seem to have dis- 
approved of this practice in itself, but to have con- 
sidered that it would have been more advantageous 
for the bank if the money had been so invested directly 
for behoof of the bank. In fact, they considered that 
the firm were diverting to themselves a profit which 
the bank would have obtained, had they been aware 
that Messrs. Eamsays, Bonars & Co. were operating 
on their account to so large an extent. For they 
were fully aware of the profitableness of this style of 
investment, and habitually availed themselves of it. 
It would seem that the firm had acquired, and held 
for years, a controlling influence in the direction which 
was prejudicial to the independent and safe manage- 
ment of the bank. One writer on the subject refers 
to it as " the thraldom under which the bank has long 
languished," and points out that the then market price 
of the stock 185 per cent was much below the 
figure twenty -eight years before. 1 This latter circum- 
stance he attributes to the exercise of the firm's 
influence in availing themselves of the use of the 
bank's funds to an excessive extent ; and he asserted 

1 In August 1788, a sum of 3592 : 6 : 8 of Royal Bank stock was 
purchased in London by a banker at 209 : 6 : 8 per cent, and three 
years later the price was 240 per cent. 


that the previous prosperity of the bank, referred to 
by Messrs. Kamsays, Bonars & Co., was principally due 
to the improved circumstances of the country. 

It is evident that such a relationship between 
banks and their customers is fraught with much 
danger ; but there can be no doubt that the above- 
narrated incident was the outcome of a long-established 
and not intentionally evil system peculiar to banking 
in Edinburgh. Its exposure at this time, and the 
competition of new joint-stock banks, effected a cure. 
This result, however, was attended with the rapid 
decay of private banking. Indeed, it was only in 
Edinburgh that private banking, pure and simple, 
was still in active operation. Of course, all the 
banking companies, other than the incorporated banks, 
were merely partnerships ; but, from the least to the 
greatest, they were more and more assuming the 
appearance and functions of public banks, except in 
the metropolis. 

In closing our review of this period (1800-15), it 
may be advisable to refer briefly to some minor details. 
Although, as we have already seen, the Bank of 
Scotland early essayed the formation of branches, and 
at the close of last century had several in operation, 
it was not until 1804 that it opened in Glasgow. 
This is the more extraordinary, as their great rivals, 
the Koyal Bank, who otherwise abstained entirely 
from branch extension, had opened in Glasgow twenty 
years before. It has, however, been supposed that a 
tacit agreement had existed between the two banks, 
that the former should have the provinces (excluding 
Glasgow), and the latter Glasgow as their respective 


spheres of influence. To the Bank of Scotland we 
are indebted for inaugurating the present system of 
deposit receipts in 1810. This movement was 
doubtless made in contemplation of the competition 
of the new joint-stock bank. About this time there 
were sixty bank offices in Scotland. Interest was 
usually allowed at from 3 per cent to 4 per cent, 
and charged at 5 per cent. The par of exchange 
between Edinburgh and London was forty days. In 
1813 the British Linen Company obtained despite 
great opposition on the part of the older banks a 
supplementary charter authorising an increase of 
their capital from 200,000 to 500,000; but, 
although they were to all intents bankers, the legal 
right to be so considered was still withheld from them. 1 
We may fitly conclude this chapter by referring 
to the inauguration of savings banks, which occurred 
at this time. The earliest movement in this direction 
appears to have been that of the Eev. Joseph Smith 
at Wendover in England in 1799, and it was followed 
by the Charitable Bank at Tottenham, both of which 
were of primitive character. It is understood that 
the first regularly organised savings bank in this 
country was established by the Eev. Henry Duncan 
in his parish of Ruthwell, Dumfriesshire, on 20th 

1 It would appear that the practice of granting licenses to issue 
notes was commenced at this time. By a Stamp Act passed in 1808 
(48 Geo. Ill c. 149), every issuing bank was required to take out a 
license, costing 20, for its head office and all branches previously 
established ; while every branch subsequently opened necessitated 
another license. By a later Act (55 Geo. III. c. 184, year 1815), 
the cost of such licenses was raised to 30 ; but banks in Scotland 
were not required to take out more than four licenses whatever the 
number of their branches. 



May 1810. It was called " The Parish Bank Friendly 
Society of Buthwell." The idea was rapidly taken up 
in other parts of the country ; the first attempt on 
an extended basis being made in Edinburgh in 1814 ; 
but details regarding it are wanting. On 19th June 
of the succeeding year, a similar establishment, which 
was styled the Provident Bank, was formed in Glasgow. 
The practice of the Scottish banks allowing interest 
on deposits materially facilitated the savings banks 
movement. There has been much legislation in 
regard to these banks. The English Act of 1828 
was made applicable to Scotland in 1835, when the 
banks were placed under the supervision of the 
National Debt Commissioners. They were recon- 
structed as National Security Savings Banks at that 
time. It is stated that the Church of St. John's 
Parish, Edinburgh, was largely built by a grant from 
the directors of the Edinburgh Savings Bank of 
unclaimed deposits, etc., when its operations ceased 
through supercession by the new organisation. More 
recent legislation, by extending the amounts of 
deposits receivable, has largely altered the character 
of savings banks ; the customers of which now include 
a large proportion of the middle classes as well as the 
working classes. This point is usually overlooked in 
discussions on labour economics. Thus was laid the 
foundation of a system for improving the condition 
of the poorer classes, which has since successfully 
developed to such an extent as to supply no small 
portion of the national resources. 



To persons who are not directly interested in, or, to 
speak more correctly, who do not devote attention to, 
economic subjects, the history of banking sometimes 
seems rather a dry subject. Unlike political history, 
it does not present an absorbing series of national and 
world-wide convulsions, involving wholesale slaughter 
and indescribable misery, and producing innumerable 
instances of heroism and intellectual greatness. Even 
ecclesiastical history supplies thrilling narratives of 
cruelty and oppression, which rival romance, and, at 
all times, enlists the liveliest enthusiasm in the battle 
of the creeds. The records of geographical and scien- 
tific discovery are also more powerful in riveting the 
attention and exciting the imagination. But, if our 
subjects deal in the main with the peaceful progress 
and economic well-being of nations, and are outside the 
realm of the startling and the sanguinary, they do at 
times supply material for stories which might interest 
the most devoted students of Newgate calendars and 
detectives' experiences. As illustrating this phase of 
banking, we shall narrate a few conspicuous instances 



of crime which occurred towards the close of the 
eighteenth and in the early part of last century, 
merely premising that the full details of the second 
story were never judicially established. 

Crimes in connection with banking in Scotland are 
mostly confined to forgeries ; but, although robberies 
have not been very numerous, some of those which 
have occurred are rather remarkable. While not an 
event of the " first magnitude," the robbery of the head 
office of the Dundee Banking Company was attended 
by some remarkable features, not least of which was 
the number of persons tried, condemned, and punished 
for the offence, while, from beginning to end, the 
question of their guilt was matter of grave doubt. 

The building in which the bank office was situated 
served a triple purpose, being primarily the public 
jail, but also containing the guildhall, as well as 
accommodating the bank. A common entrance gave 
access to them from the street, the bank being on the 
street level, with the guildhall immediately above it. 
The utilitarianism of this conjoint arrangement was 
surpassed by the Arcadian simplicity which dispensed 
with any nightly resident on the premises. When 
the bank closed on Saturday, 16th February 1*788, the 
premises were left under the charge of the jailor, who, 
having subsequently shut up his prisoners as sheep in 
their fold, locked the outer door at ten o'clock, and 
betook himself to more felicitous scenes. The bank 
office was thus left to solitude, and the proximity of 
the imprisoned, but unguarded, rascality of the town. 

Next morning (Sunday) Peter Stewart, the said 
jailor, was roused from his balmy slumbers " about 


eight o'clock, by two boys, to look at a woman who 
was making a great noise," when he experienced a 
sensation similar to that of the keeper of the prison at 
PMlippi when he awakened out of his sleep and saw 
the prison doors open. But like him, also, the Dundee 
jailor had assurance that his charges were safe. As 
stated in his evidence at the trial, " he found one leaf 
of the great gate forced open, which made him afraid 
lest the prison was broke ; but he found it safe. He, 
however, found the door of the guildhall half open, and 
a hole made in the floor. He also saw an iron pinch 
at the side of the hole. He immediately went and 
told the keeper of the guildhall and the deputy-cashier 
(or teller) of the bank." On proceeding to the scene, 
the teller (William Watson) looked through the hole 
in the floor, which was immediately above the bank, 
and saw that his drawers in the office below had been 
broken open. In these drawers he had left about 
1000, which is another illustration of the happy-go- 
lucky way in which they managed affairs in the good 
old times. 

Mr. Eobert Jobson, the cashier (or manager), was 
then called, and an examination of the bank office 
made. Of the teller's cash, amounting to 998 : 13s., 
notes, gold, silver, and copper, to the amount of 
423:7:6 were gone ; but apparently the rest had 
been overlooked. The manager's room, which con- 
stituted the treasure vault, was found locked ; but the 
key, " which was usually left in the teller's room " 
(another happy instance of sublime confidence), " was 
carried off." The door being of iron, " they were obliged 
to get a smith, with a mason, to force it open, which 


took up about two hours." Fortunately all was right 

The bank immediately advertised the robbery, and 
offered a reward of 50 for information; but it was 
not immediately forthcoming. According to their 
minutes, as quoted by the historion of the bank, the 
directors, " finding as yet no prospect of a recovery of 
the money, nor even of a discovery of the perpetrators, 
ordered the above sum to be placed to the debit of 
profit and loss." However, a tailor called Macdonald, 
who afterwards played the role of chief informer, pro- 
fessed to be able to reveal the mystery ; but, owing to 
his reticence, nothing could at the time be made of 
him. One man, Harris or Herries, was arrested, but, 
being found innocent, was liberated. In the August 
following, two men, Bruce and Falconar, were tried in 
the High Court of Justiciary, Edinburgh, for the crime. 
The jury having by a majority found them guilty, they 
were sentenced to be hanged. Owing to doubts re- 
garding their guilt, the sentence was twice respited. 
Meantime, other three men, Dick, Willox, and Howie, 
were arrested, and tried at Edinburgh in November. 
The libel was found not proven against Willox and 
Howie, but Dick was found guilty and sentenced to be 
hanged. Doubts again arising, however, a respite was 
given in his case also to allow of further inquiry. 

Alexander Macdonald, the original informant, whose 
character was, at both trials, spoken of as very bad, 
was examined at great length. He asserted that the 
plot had been hatching from the middle of the previous 
year, when Dick, Willox, Falconar, and Bruce, "com- 
plaining of want of money, Falconar proposed to break 


into Jobson's chest," as they facetiously called the bank 
office. Consultations went on from time to time, and 
they made him take an oath which, he was told, they 
had all sworn, to wit, " If I make a discovery, may I 
never have any share in the blood of Christ." On the 
night of the robbery they made him promise to go 
with them ; but he made an excuse to return first to 
his house, " having nothing on him but his shirt." 
Later, along with a woman and two men, he went to 
the place, and going up the stair of the guildhall, saw 
all the men named, and Howie in the hall. Dick and 
Bruce were lowering Falconar, by means of a rope, 
through the hole in the floor. He narrated other 
details which tended to confirm his evidence, but which 
must be passed over here. "During the time they 
were all laughing like to split their sides." Eeturning 
to the street, Macdonald and the people with him, 
from the shadow of the pillars, watched the five thieves 
leave the premises. They had apparently been scared 
by a woman screaming ; but whether this was the dis- 
turbance which caused the boys to rouse the jailor from 
his well-earned repose or not we are not informed. 

A great amount of evidence was taken which 
seemed to confirm Macdonald's tale, but it does not 
appear that the others who saw the proceedings 
explicitly identified the prisoners. Notwithstanding 
the respites which had been granted, the sentence on 
Bruce and Falconar was carried out at Edinburgh, on 
24th December. Consistently throughout they denied 
all knowledge of the crime. According to a contem- 
porary account, " their behaviour on the scaffold was 
devout, serious, and becoming ; and in their address to 


the Almighty they implored forgiveness to those by 
whose testimony they had been untimely cut off." 
Dick was fortunate enough to obtain a pardon. The 
witness Macdonald soon came to a bad end. He was 
tried and condemned to transportation a year later for 
forging a bill. This raised doubts as to his former 
evidence ; but he vehemently asserted in Court that 
Bruce and Falconar had been guilty of the robbery. 
On his way to Botany Bay he was hanged on board 
ship for mutiny. Nearly a year later another male- 
factor, under sentence of death for robbery, asserted 
that he was the actual perpetrator of the Dundee 
Bank robbery. A respite was granted for three weeks 
to allow of inquiry ; but as it appeared he had fabri- 
cated the story to escape his fate, his sentence was 
carried out. With his latest breath, however, he 
asserted that Falconar, Bruce, and Dick, were innocent 
of the robbery. 

So ended this melancholy episode, regarding which 
one has an uneasy feeling of uncertainty as to the 
justice of the sentence on the unhappy prisoners. 

Late in the afternoon of the 13th November 1806, 
a young Edinburgh sailor, whose ship had come into 
Leith, started from the latter town to visit his 
mother and sister in the Netherbow. Although de- 
scribed at a later period as " a very industrious good 
man," on the present occasion he displayed that 
elasticity of conscience which is too frequently shown 
by people of the present time in their dealings with 
the revenue departments. He was taking home "a 
small present " from foreign parts, of a contraband 
description. Leith Walk, which formed the main 


part of his route, was very different then from what 
it is now. Its location and extent were precisely the 
same, but it was dark and desolate. As he walked 
on, he saw two men before him. One was tall, and 
carried a yellow bag ; the other was dressed in black. 
The men were not together. The last mentioned was 
" dogging " the other crossing from one side of the 
Walk to the other, as occasion might require, to avoid 
notice. So steadily did he pursue his game, that 
he never observed our sailor lad behind him. The 
latter's conscience immediately divined that the 
carrier of the bag was a smuggler, who was being 
tracked by a custom-house officer. His own guilt, 
unfortunately, distorted his vision, and enforced on 
him such precautions for his own safety as prevented 
him from detecting perhaps preventing a diabolical 

The first man was no smuggler. He was William 
Begbie, messenger of the British Linen Company, and 
was, in accordance with his usual practice, carrying 
notes of the various banks, to the value of 4392, 
from the Leith branch to the head office, to be 
exchanged next day. There is reason to believe that 
the man who was following him was James Mack- 
coull, a London villain of the blackest dye; but of 
such dexterity that, even in his grossest and most 
daring crimes, he almost invariably escaped detection. 
He seemed to find the comparatively unsophisticated 
people of Edinburgh as good game ; for he paid them 
repeated visits, which only terminated when his 
quarters got too hot for him. On the present occa- 
sion he had lodgings in New Street, Canongate, but 


usually spent the day among the Leith taverns. He 
was now on his way home ; but, whether or not he 
had previously planned the scheme, he turned his 
present opportunity to the uses of his profession, 
which was that of pickpocket, thief, receiver of stolen 
goods, and vendor of stolen bank notes. 

The three dramatis personce, at respectful distances 
from one another, proceeded up the Walk and up 
Leith Street. Here Begbie appears to have at once 
crossed Princes Street, to go up the North Bridge. 
Mackcoull was too great a professor of the light- 
fingered art to seem to follow. The east end of 
Princes Street, although then a quiet place as com- 
pared with its present bustle, was not a spot for 
privacy. The Theatre-Boyal stood where the General 
Post Office now stands ; and Shakespeare Square, 
with its roystering taverns and oyster cellars, was 
built around it. Instead of following his victim 
directly, he turned along Princes Street, in front 
of the Eegister Office. It may be that his guilty 
thoughts pictured a tragic scene, of which he might 
well be aware from his frequent visits to the city, 
enacted within a stone's throw of the spot where he 
stood and gazed around, to make sure he was un- 
observed; for in that thoroughfare which is now 
called West Kegister Street, but which then was a 
Kirk Lane, a tutor had cruelly murdered his two 
young charges. He thought himself unseen 
although he was a licentiate of the Church, it may 
be presumed he did not think of his Maker's eye 
but his deed was witnessed from Moultrie's Hill, 
on which St. James' Square was afterwards built, 


the view being at that time uninterrupted by build- 
ings. Taken red-handed, he was lynched on the 
spot, which, after him, was named Gabriel's Place. 1 

When our sailor friend observed the "custom- 
house officer" look about him, "he hove -to and 
watched him " (to use his own words), as he feared he 
might be looking for him. However, the "officer" 
shortly followed his victim up the bridge, and both 
were soon lost to sight in the darkness ; for it must 
be remembered that the streets were then very 
ineffectually lighted with oil lamps. The sailor then 
slowly pursued his way, which lay in the same 
direction, and saw nothing of the two men. He 
reached the High Street, and turned down towards 
the Canongate. When he came to Tweeddale's Close, 
in which the office of the British linen Co. was 
situated, he was surprised and alarmed by seeing 
the " custom-house officer " run out of the entry with 
something under his coat. In the excitement of the 
moment, he seems to have lost his presence of mind ; 
for he could not afterwards tell which way the 
" officer " went. Rushing to his mother's house, which 
was close at hand, he stayed only to leave his con- 
traband present, which had so disturbed his peace 
of mind, and hastily returned to his ship, imagining 
he had narrowly escaped detection of his smuggling. 

Next day the city learnt that William Begbie, 
messenger of the British Linen Company's Bank, 

1 Part of the roadway still exists, and bears the name Gabriel's 
Road. A tree under which, according to tradition, the deed was 
done, stood in the south-east corner of the grounds of the Royal 
Bank, until it was blown down a few years ago. 


had been fatally stabbed in Tweed dale's Close, and 
robbed of bank-notes to the value of 4392. Lord 
Cockburn, who was counsel for the Paisley Union 
Bank in a subsequent action against Mackcoull, says, 
" he was found with a knife in his heart, and a piece 
of paper, through which it had been thrust, interposed 
between the murderer's hand and the blood" so 
premeditated was the deed. Fear of the discovery 
of his own illegal doings seems to have sealed the 
sailor's lips. His ship left Leith within a few days, 
and he did not return to Scotland for years. Various 
apprehensions were made, but the guilty person was 
never identified. Later investigations tended to 
point out Mackcoull as the perpetrator ; but his death 
appears to have interrupted the successful prosecu- 
tion of these inquiries. The large notes of which 
Begbie had been robbed were subsequently found in 
a hole in a wall in the grounds of Bellevue. It is 
supposed they were placed there by Mackcoull on 
his return to Edinburgh he had left his lodgings 
in New Street immediately after the murder occurred 
when he felt himself unable safely to dispose of 
them for value. It is, perhaps, but just to add that 
Lord Cockburn's judicial mind was not satisfied with 
the evidence as to Mackcoull's guilt. 

Some years after the sad event we have just 
narrated, a still more extraordinary, though happily 
less horrible, crime was perpetrated on the banking 
community. Early in May 1811, three travellers 
arrived in Glasgow. The oldest, and seemingly the 
ruling spirit of the party, was a man under fifty 
years of age, of average height, stout, with ruddy 


round face, in which were set large, sharp, dark eyes. 
He gave his name as James Moffat, and is said to 
have been " somewhat like a gentleman." Neither 
of his companions was so striking in appearance. 
The more respectable-looking of the two was about 
Moffat's height; the other was thinner and taller, 
and was dressed like a mechanic. They answered 
respectively to the names of Stone and Down. Moffat 
said they were his cousins. The three had left 
London by post-chaise, and finished their journey by 
mail coach. Presenting themselves at the house of 
a widow, named Stewart, who kept lodgings at the 
Broomielaw, where she lived with her son and niece, 
they secured rooms for a fortnight, and seemed to 
live a quiet and retired life. 

They early contracted a habit of leaving the house 
about ten o'clock at night, for about a couple of houis. 
This, it would seem, was at that period a very unusual 
time for citizens of St. Mungo to be abroad ; but, our 
friends being Londoners, and seemingly of irreproach- 
able character, no surprise was excited. In these 
circumstances, it can hardly be wondered that the 
mysterious disappearance of a small chamber organ 
from the house should have been attributed by the 
good widow to some inscrutable dispensation of provi- 
dence, which had no connection with her respected 
English guests. We do not mean to say they stole 
it. Such an insignificant article could not excite 
their cupidity. But, having a use for its pewter 
pipes, or rather for the metal itself, they simply did 
as all great men have done since the world began 
they made use of the materials that lay readiest to 


their hands. However, at best, this is a mere minor 
part of the business. 

As our readers will suspect the character and 
intentions of our heroes, and as they are already 
acquainted with the most important member of the 
party, it is as well, perhaps, that we should introduce 
each in proprid persond. James Moffat, then, was 
no other than the old custom-house officer who gave 
the sailor boy such a fright, and did worse damage 
still, if all tales be true, to his own soul and poor 
Begbie's body on the same occasion. He had formed 
a great plan, and taken to himself two other spirits, 
who, if less wicked than he, were only so from want 
of similar natural talents. Their real names, or those 
at least by which they were principally known to 
the police, were Harry French and Houghton (or 
Huffey, as he was colloquially termed) White. They 
were as precious a pair of villains as remained un- 
hanged. Indeed, White (the " Down " of the present 
episode) had been specially rescued from the hulks, 
for the purposes of the present expedition, on account 
of his mechanical knowledge. The great design which 
Mackcoull had elaborated was the robbery of the 
Glasgow Branch of the Paisley Union Bank. 

The office which formed the subject of the trio's 
attentions was situate^ in Ingram Street, occupying 
the street floor of a corner house, there being separate 
warerooms above, and cellars below. It consisted of 
two rooms, in the inner of which was a vault or 
closet, with an iron door, which formed the strong 
room of the branch. Many a time, during May and 
June, had the three robbers reconnoitred the premises 


more particularly during the silent time after ten 
o'clock at night, when the worthy and unsophisticated 
inhabitants had retired to rest. At first they had 
thought that a fortnight would suffice to effect their 
purpose ; but the keys which they had procured from 
a confederate locksmith in London would not suit. 
The old-fashioned simple locks baffled burglars who 
were accustomed to more scientific guards, so 
Mackcoull set off for London (under pretence of going 
to Liverpool), to have keys made under his own 
supervision. White manufactured a key from the 
pewter pipes of the musical box, probably to get 
the impression of the wards of the locks. After 
Mackcoull's return, a little adjustment of the keys 
seems to have given complete command of the 
premises. It was now the beginning of July, and, 
according to notice they had previously given, they 
left their lodgings, with the ostensible object of going 
to Bristol. Where they did go does not appear. It 
would seem, however, that they purposely delayed the 
execution of the robbery until the Fair week, when 
the presence of a heterogeneous crowd of questionable 
characters might serve to divert attention from them. 
On Saturday, 13th July 1811, business went on 
as usual at the branch office. Four o'clock came. 
Mr. Likely, the cashier, and other officers, had taken 
their departure ; and Mr. Hamilton, the teller, handed 
over his cash to John Thomson, the porter. On the 
arrival of a box of retired notes, amounting to about 
4000, from the bank's correspondents in Edinburgh 
Sir Wm. Forbes & Co. the porter locked it, with 
the teller's cash, into the safe, shut up the office, and 


took the keys to the house of Mr. Temple ton, the 
manager. We have here a charming glimpse of 
bank office management in the olden time. One 
does not know whether most to admire the mutual 
confidence displayed by the staff from the highest to 
the lowest, or to envy the social conditions that 
permitted the total absence of supervision in the 
transference of cash. Sunday passed, no doubt with 
prolonged doctrinal disquisitions, slightly interspersed 
with discordant tunes, and added to by domestic 
catechisings in semi - solitary confinement, amid 
repressed desires for the return of Monday. The 
morning came at last, and John Thomson got the 
bank keys, and opened the office as usual. He 
unlocked the safe to get out the teller's cash, and 
then he witnessed a spectacle which must have pro- 
duced in him sensations more easy to imagine than to 
describe. The lid of the Edinburgh box was broken, 
and the remittance had disappeared. The cash 
drawers had been forced, and their contents abstracted. 
Everything in the shape of cash, including some base 
coin, was gone. The bank since Saturday was minus 

Sunday morning had been a busy time with the 
interesting trio ; but it is left to the imagination 
to picture their modus operandi. They had been 
seen in the Gallowgate on Friday the 12th July 
the day preceding the robbery but there is no other 
record of their movements until after the great event 
was accomplished. A certain David Clachar, who was 
early astir, saw the three " sitting on a dyke at the 
corner of Stirling's Road," not far from the bank. 


They had a large bundle with them, from which they 
took a parcel of notes, and counted them. They also 
counted silver coin ; and then packing up, proceeded 
towards the heart of the city. There they procured, 
with some difficulty, a post-chaise, in which they left 
for Edinburgh, urging the postboy to speed, on the 
plea that Mackcoull had a brother at the point of 
death, whom he earnestly desired to see. Posting 
thus, early on the Sunday morning, and changing 
horses at Airdrie and Uphall, they drove into 
Edinburgh. They dismissed the chaise at the west 
end of Princes Street just where Dean Eamsay's 
monument now stands being anxious to throw 
pursuers off the scent. And pursued they speedily 
were ; for no sooner was the news of the robbery 
circulated, than Clachar and others put the bank 
authorities on the trail. But the robbers had a good 
start, of which they did not fail to avail themselves. 
They were not the sort, however, to neglect their 
personal comfort. They had regaled themselves, at 
each stage, with drinking and smoking. Mackcoull, 
who was well acquainted with Edinburgh, led the 
way to M'Cousland's St. Andrew Tavern in Eose 
Street, which he had formerly frequented when he 
lodged in that street. There they dined no doubt 
sumptuously. During afternoon church services 
they appear to have slipped unnoticed, through the 
deserted streets, to the Black Bull Inn in Leith 
Street, then the great centre of the mail coach routes. 
There they hired another chaise, and proceeded by 
Haddington and the usual stages to London, taking 
four horses after they crossed the Border. 



Their pursuers followed them with great activity; 
but the necessity for inquiry at every stage gave the 
villains more than the full advantage of their start. 
Mackcoull and his associates got to their villainous 
haunts without interruption. The London police, 
however, succeeded in arresting French and White ; 
but, by a most extraordinary system of negotiation, 
Mackcoull managed to save himself, and secure about 
8000 of the booty. Through his wife he negotiated 
a treaty with the authorities, by which he agreed to 
give up what was left of the money, on condition that 
the offence would be overlooked, and that his accom- 
plices would be saved from the sentence of death to 
which they were liable for escaping from the hulks. 
The amount he gave up, however, was only 11,941. 
He had the audacity, some years later, to come to 
Leith and purchase bills on London with the stolen 
notes, and, when arrested, to sue the Paisley Union 
Bank for the amount of the bills then taken from him. 
Strange to say, after prolonged litigation, he very 
nearly won his case. But at last, his guilt was fully 
established at the concluding sederunt of his case; 
and he was arrested, tried, and condemned to death 
on the criminal charge. A reprieve was granted, 
however, and he died in the county jail in Edinburgh, 
on 22nd December 1820, after enduring a period of 
great mental agony. White was afterwards executed 
for robbing a mail coach. 

Another robbery, 1 bearing some resemblances to 
the one just narrated, occurred seventeen years later. 

1 See Historical Sketches of the Town and Harbours of GreenocTc, 
D. Campbell, Greenock, 1879, vol. i. 


In this case too, the operators were London burglars, 
whose modus operandi shows a scientific finish con- 
trasting strikingly with the criminal manners of the 
natives as exemplified by the Dundee Bank robbery 
already described. Indeed, it must be admitted that 
in all departments of the light-fingered arts, the 
Scotch could not hold a candle to their metropolitan 
confreres; and, seemingly, the latter do not appear 
ever to have considered it worth their while to seek 
their assistance. 

This crime was the robbery of the Greenock Bank 
on Sunday, 9th March 1828. The office consisted of 
two apartments on the street floor of the Assembly 
Booms, entering by the first door on the right hand 
of the hall of the building. Further in, on the left, 
was a newsroom, which, even at that early period of the 
century, was open on the Sabbath day a circumstance 
which facilitated the depredation ; for, had the outer 
door of the building been shut, the scheme would have 
required even bolder and more precarious efforts than 
the policy of the " open door " necessitated. 

The enterprise was very carefully arranged. Having 
paid Greenock the compliment of selection for their 
attentions, the thieves, in the preceding June, deputed 
one of their number Henry Sanders, or Saunders 
(which, it must be confessed, has a somewhat Scottish 
sound) to reconnoitre. For the occasion, however, 
he assumed the name of Eldin, perhaps out of regard 
for a facetious Edinburgh judge of the time. His 
practised eye readily saw that the weak points of the 
Greenock Bank's position rendered it the most suitable 
for their attentions. Having satisfied himself as to 


the object of attack, he departed from the scene, 
probably to consult with his colleagues ; but doubt- 
less also because the early and late sunlight of the 
northern summer made it necessary to delay proceedings 
until the winter supplied the facility of darkness for 
their enterprise. 

We accordingly find that, on 23rd November 
182*7, Mr. Eldin returned to his old landlady, 
bringing a companion with him. They were received 
joyfully, for Mr. Eldin had been a most quiet, 
regular, and respectably living man. This style of 
life was resumed. The lodgers were evidently men 
of the most sedate not to say stoical character. 
They went to bed at 10, and rose at 5.30, going out 
every morning to bathe in the salt sea waves at 
6 o'clock although it was winter-time ; at least they 
said so it is not recorded that they were ever seen 
in the water. Indeed, traducers of their characters 
insinuate that they employed these early hours to 
take impressions of the bank locks. It seems that 
was the only time when no one was on the premises ; 
the messenger, Kobert Love, after sleeping in the 
bank, with his bed against the safe door, going to 
his home round the corner, probably to get his 
breakfast ; but, as it is more touchingly expressed 
in the history of the transaction, " to say good- 
morning to his wife." However that may be, he 
had a further expedition in view for every morning, 
Sunday included, he attended to his interests as 
contractor for the mail communications between 
Greenock and Largs, by seeing to the starting of 
his gig with a small boy as driver. This then was 


the only time our interesting acquaintances had for 
making their bank inspection. It was not perhaps as 
thorough an inspection as official inspectors are wont 
to make ; but, if they did not overhaul the securities 
for advances to customers, they secured an advance 
themselves, and verified the cash balance. 

But we are anticipating. For after a stay of 
seventeen days the two scoundrels left Greenock, for 
the purpose, it was conjectured, of improving their 
false keys. Their absence was, however, of short 
duration, and on their return to their old landlady 
they stayed until 7th January 1828. The worthy 
lady was confirmed in her good opinion of her lodgers 
by discovering that they were ironmongers ; for, from 
a cupboard, she heard them filing and clinking metal 
most industriously. It remained, however, a subject 
of debate between her and a gossip whether they 
were in the cutlery or Britannia metal line. But the 
ladies seem to have had no shadow of doubt as to 
their being true as steel. They now took to rather a 
roving life, staying sometimes at one inn and some- 
times at another ; with occasional disappearances from 
the town. Thus, laboriously, did they study their 
enterprise, moving from place to place that they 
might more thoroughly observe the movements of 
the denizens of the building, and visiting accomplices 
to get their keys more delicately adjusted. 

At last, after about nine months' preparation, the 
great enterprise is fixed for the morning of Sabbath, 
9th March. On the preceding evening the con- 
spirators bade adieu to their host of the George Inn, 
but they could not tear themselves away from the 


town of their adoption without some keepsake for 
remembrance. So they lay perdu in the town until 
early morn. The same evening two confederates 
arrived in separate gigs ; and, no doubt, a full 
council of war would be held to settle final details. 
The weather was propitious, in so far that it was of 
so boisterous a description that people were too much 
absorbed in looking to their own protection to pay 
heed to the movements of the couple, even if the good 
people of Greenock had been of a suspicious turn of 

On the eventful morning, Kobert Love arose from 
his sentinel slumbers. The conscientious historian 
relates that he dressed himself, which might almost 
have been taken for granted ; but he says not a word 
as to ablutions, a detail for which a voucher would 
not have been amiss. The porter was, however, of 
sufficiently tidy habits to tuck away his bed and 
bedding into a corner where they were wont to lie 
out of sight during the hours of business. Leaving 
the key of the bank at his house round the corner, 
he proceeded to his duties in connection with His 
Majesty's mails, and to conversation with his friends, 
which the comparative freedom of the Sabbath per- 

Meanwhile the opportunity for which the miscreants 
had plotted for nine months had come, and the pre- 
conceived arrangements were put in action. The two 
gigs were in waiting in different streets adjacent to, 
but out of sight of the bank. The second of the two 
chief actors (who was endowed with a squint, which 
seems to have been his principal recommendation, as 


it enabled him to see things when it was supposed he 
was looking in a different direction, and who is 
represented as a lily-livered creature) went in trembling 
to the newsroom and kept the attendant there looking 
up the Jamaica papers for a report of a fictitious 
accident to an imaginary relative, whose ship, he said, 
had foundered in the Gulf of Mexico. Under cover of 
this feint, the judge's namesake opened the bank door 
with his false key; and, entering, soon got access to 
the treasure of the bank. Not content with the coin, 
amounting to 1661:15:6, Mr. Eldin annexed all 
the notes in the chest. These amounted to 28,354 
of the bank's own issue, and 4100:13 s. of notes 
of other banks. These he crammed into two great 
travelling bags; and, throwing a large cloak about 
him, carrying booty to the value of 34,116:8:6, 
he evacuated the premises. Gaining one of the gigs 
he stowed cargo, and jumping up beside the con- 
federate driver they started, at a rapid rate, for 
Glasgow. His craven-hearted lieutenant, leaving his 
phantom relative's fate to the further researches of 
the kindly librarian, followed so hastily that his gig 
actually overtook that of his chief. 

Beaching Edinburgh, they succeeded early on 
Monday morning in cashing some of the notes at 
Sir William Forbes', the Koyal, and the British Linen 
Banks to the amount of about 4800. The teller at 
the Bank of Scotland, however, was not so easily 
hoodwinked, and refused the business. So, fearing 
that further delay might be dangerous, they hired a 
post-chaise and made for the south with their plunder. 
Arrived in London they declared a dividend of the 


entire profits of the undertaking, and dissolved partner- 
ship ; rejoicing doubtless no less in the pride of their 
skill than in the material result of so perilous an 
expedition. And it must be admitted that, if an 
evil deed can be so described, it was well done. 

The sequel was very remarkable. By private 
negotiations, through a thieves' lawyer, more than 
half of the stolen money was recovered. It was 
arranged that a single representative of the bank 
was to wait in a hackney coach at a secluded spot. 
This was done, and there a porter delivered to him a 
box which was afterwards found to contain about 
20,000 of the stolen notes. The consideration for 
this restitution (which, it may be noticed, was the 
giving up by the thieves of what entailed more 
danger than prospective profit in the retention) was 
that prosecution proceedings, on the part of the bank, 
should be dropped. Here the matter would have 
ended had not the Lord Advocate instituted inquiries. 
As it was, our friend Mr. Eldin was laid by the heels, 
brought to Glasgow, and tried six months after the 
robbery. The jury, however, brought in a verdict of 
" not proven," and the prisoner was discharged ; Lord 
Meadowbank, who presided, clearly indicating his 
suspicions. Indeed, the evidence, though circum- 
stantial, reads so clearly adverse to the prisoner, 
that it is surprising that he escaped. But he was 
a clever rogue. 



THE period of about ten years, from the close of the 
Napoleonic wars in 1815 to the great crisis of 1825-6, 
which forms the subject of the present chapter, was 
one of almost profound peace. During the first year, 
the bitter effects of the terrible international struggle 
which had convulsed the world were severely felt in 
Britain. Commercial enterprise was in a state of great 
prostration ; provisions were scarce and dear ; and the 
sufferings of the labouring classes broke out in disturb- 
ances which were not always quashed without bloodshed. 
In 1817, however, symptoms of improvement mani- 
fested themselves. Commerce revived, the national 
industries showed greater signs of life, and financial 
ventures were indulged in. Steamboats began to ply 
on all the great rivers ; and steam power was applied 
to printing and manufactures. Foreign loans, also, 
became popular, and much British capital was thus 
profitably employed in ameliorating the distresses of 
the European nations. In 1816, the Government 
issued a new silver coinage. This had become an ab- 



solute necessity owing to the worn condition of the 
metallic currency. This was so bad that it is recorded 
that, in some districts, the greatest surprise was mani- 
fested at the liberality of the Government in supplying 
for general currency beautifully- executed " medals " in 
place of the smooth discs in circulation. Early in the 
following year, the gold coinage was also renewed ; and 
in the autumn, the Bank of England partially resumed 
payment in specie. Before the death of George III., 
in 1820, considerable advances had been made in the 
national prosperity. Some great public works such 
as the Edinburgh and Glasgow Canal in Scotland 
were completed ; ocean steam navigation was developed ; 
and a healthy amount of national industry was displayed. 
The two great questions of Free Trade and Parlia- 
mentary Eeform were much agitated at this time. 

The year 1820 would seem to have been the turning 
point of the period, when the feverish stage commenced. 
In the middle of that year a great commercial and 
financial crisis occurred in Ireland, whereby private 
banking which had, for the most part, been conducted 
on most unsatisfactory principles was virtually ex- 
tinguished. Some twenty banking and note-issuing 
firms were swept away. This crisis did not, however, 
extend to Britain. There, enterprise and industry 
were proceeding apace, in buoyancy and hope. In 
1821, the Bank of England was permitted fully to 
resume specie payments ; and, during the three succeed- 
ing years, the condition of the country was one of much 
prosperity, combined with which, the spirit of specula- 
tion was largely developed. After that came the 
inevitable crisis. 


As regards banking in Scotland during the greater 
part of this period, the leading characteristics would 
seem to have been, the continued development of the 
large banks, and the withdrawal or failure of purely 
local establishments. Previous to 1825, only two new 
firms commenced business. The first of these was the 
Exchange and Deposit Bank of John Maberly & Co., 
with offices at Aberdeen, Montrose, Dundee, Edinburgh, 
and Glasgow. They were properly an English linen 
manufacturing firm, and in 1818 they established 
themselves as bankers in Scotland, with the object of 
profiting by the high rate of exchange on London. 
This entrance on the Scottish field was by no means 
relished by the native bankers ; but it is probable that 
the public profited by it. This will be understood 
when it is remembered that the usual par of exchange 
was 40 to 50 days ; whereas Maberly commenced with 
20 days, and latterly reduced the period to 10 days. 
The result showed that the intrusionists overreached 
themselves in adopting a scale which has only in recent 
years been naturally attained to ; but there can be little 
doubt that their opponents had erred on the side of 
their own interest. After a career of fourteen years 
as bankers, Maberly & Co. succumbed in 1832; but 
it does not appear whether their failure is to be attri- 
buted to the banking or to the manufacturing business. 
The liquidation was conducted under an English fiat 
of bankruptcy, the debts in both departments of the 
business amounting to 149,082, on which a dividend 
of 4s. 5d. per was paid. As the assets are stated 
to have realised 76,669, it would seem that the ex- 
penses of liquidation were very heavy. 


The second bank to which we have referred was 
the firm of Hay & Ogilvie, who commenced business 
in Lerwick in 1821, under the designation of the 
Shetland Bank. They were also engaged in trade, 
which part of their business was, no doubt, previously 
established. They appear to have ceased issuing their 
own notes in 1827 ; but for what reason is not stated. 
They continued for twenty years, when they made a 
bad failure. One of the partners, John Ogilvy (the 
name is thus printed in the notice, although differing 
from the spelling in the official style of the firm), died 
in 1829 ; and the failure, according to one authority, 1 
occurred in 1830, with debts, both as merchants and 
bankers, amounting to 60,000, on which a dividend 
of 6s. per was paid. The date is otherwise given 2 
as 1842, the liabilities as 140,000, and the dividend 
in sequestration as 5s. per , with the prospect of a 
little more. Perhaps they resumed business, after a 
composition, in 1830. From this time to the closing 
year of the period, bank extension consisted entirely 
in the opening of branches throughout the country. 
The Commercial Bank and the British Linen Com- 
pany displayed the greatest amount of activity in 
this respect. 

A marked feature of this period was the disappear- 
ance of a considerable number of banks the exits 
being pretty well spread over the ten years. In 1816, 
the Falkirk Union Bank, with liabilities to the 
amount of 60,000, was sequestrated. The number 
of partners was only eight. Malachi Malagrowther 
states that they met their engagements without much 

J Boase, 2nd ed., p. 364. 2 Somers, p. 107 


loss to their creditors ; but it is probable he had not 
asked the latter for their opinion, seeing the total 
dividend did not exceed 10s. per . However, it was 
a small concern. In 1820 a little known establish- 
ment, called the Glasgow Commercial Bank, withdrew 
from business. Towards the close of the next year 
the firm of Sir William Douglas, Bart., & Co., 
carrying on business at Castle -Douglas, under the 
style of the Galloway Banking Company, was also 
wound up. It had existed for fifteen years. It may 
be presumed that its liabilities were met in full. At 
this time, also, the Kilmarnock Banking Company, 
who started early in the century, merged their business 
in that of Hunters & Co., Ayr. 

In the following year (1822) a very unfortunate 
failure occurred. The East Lothian Banking Com- 
pany had been formed at Dunbar in 1810, with a 
capital of 80,000, in 400 shares, held by twenty- 
seven partners. It would seem that the bank never 
did well. This was principally owing to the disreput- 
able conduct of the cashier (or manager), William 
Borthwick, who, after involving the bank in much 
bad business, absconded with 21,000, on 10th April 
1822. Messrs. Forbes & Co., of Edinburgh, advanced 
100,000 to assist the liquidation, pending the realis- 
ation of the assets and a call of 250 per share. 
The liabilities amounted to 129,000, and the assets 
to 63,000 ; but the partners paid in full. In con- 
nection with this affair there is a rather mythical- 
looking account of a design on the part of Borthwick 
to kidnap one of the directors and the law agent 
who were probably of too inquiring a disposition for 


his taste in order to further his private designs. 
According to Borth wick's written directions, which 
were found among his papers, they were to be inveigled 
to a specified place, seized, gagged, and put into empty 
puncheons with air-holes. They were then to be 
taken to D unbar and shipped (presumably as Scotch 
ale) on board a vessel belonging to Borthwick's brother, 
which was about to sail for Dantzic. Thereafter they 
were to be conducted to a desolate part of Prussia and 
confined eight or nine months " without change of 
clothes or shaving materials." The conspirator con- 
cludes (what was, doubtless, a day-dream with which 
he gratified his spleen) thus : " I will venture to affirm 
that at the expiry of that time they will have repented 
most sincerely of their conduct." 1 In 1824 the 
Edinburgh firm of John Wardrop & Co. disappeared 
from the list of bankers. 

The year 1825 is notable for the establishment of 
four new banks, all of which were successful. One of 
these was the Aberdeen Town and County Banking 
Company, which is one of only three provincial banks 
surviving from the multitude which have been started. 
Let us hope that no amount of charming on the part 
of the large banks will induce these establishments 
to forego their independence. The roll of banks in 
Scotland is small enough ; it can hardly be for the 
public advantage to have competition further narrowed ; 
and the advantage to the shareholders, so long as their 
business is prosperous, of amalgamation, is probably 
not sufficient to counterbalance the chances they would 
forego of development into national banks. The Aber- 

1 Banking in Glasgow. 


deen Town and County Bank (now the Town and 
County Bank, Limited) started with a capital of 
150,000, held by 470 partners. Another bank 
established in this year was the Arbroath Banking 
Company, with a capital of 100,000 subscribed, and 
of 40,000 paid. It amalgamated with the Com- 
mercial Bank of Scotland in 1844. A third was the 
Dundee Commercial Bank (the second of that name), 
with a capital of 50,000. It retired in 1838, in 
favour of a newly -organised company the Eastern 
Bank of Scotland which was designed to carry on a 
more extended business. Thus euphemistically ; but 
one who was well able to speak on the subject thus 
describes the event : " The mystery of this proceeding 
was revealed in the course of winding up the affairs 
of .the former bank, when the partners came to find 
that not only had its whole capital been lost, but 
about half as much more, which, less the premium of 
20,000 received from the Eastern Bank for the good- 
will of the business, they had to liquidate. For this 
purpose 40 per share was called up; but 13 : 10s. 
per share of this was returned subsequently. 1 " 

The fourth was the now well known and powerful 
establishment, the National Bank of Scotland. From 
the outset, it appears to have been designed on a large 
scale. Indeed, it was the result of the combination 
of no fewer than three distinct banking companies 
projected in 1824. The first of these seems to have 
been the Scottish Union Commercial Banking Com- 
pany; but it was speedily followed by the Scottish 
Union Banking Company, and the National Bank of 

1 Boase. 


Scotland, the prospectuses of all three being before 
the public at the same time. The advertisements of 
all of them state that the subscriptions were rapidly 
filling up ; but it seems to have become evident, even 
to the enthusiastic promoters, that such an accession 
to the number of Edinburgh banks was unadvisable. 
The Scottish Union and the National made what they 
termed "a treaty of union," whereby they were to 
unite their interests and divide the prospective appoint- 
ments to their mutual advantage, under the designa- 
tion of the Scottish National Banking Company. 
They then held out the olive branch to the Scottish 
Union Commercial; but their advances were not 

However, the united companies were not to be so 
easily baffled in their design of preventing rivalry. 
Finding they could not win the promoters to their 
side, they made a seductive attempt on the sub- 
scribers. On 1st January 1825, the united companies 
published a long advertisement, in which they reflected 
warmly on the "insidious" conduct of their rivals, 
and threatened that, if the Union Commercial Com- 
pany would not join them, they would advertise their 
readiness to receive individual subscribers to that 
company into their concern. Whether as the result 
of this threat, or from the prevalence of reasonable 
counsels, the two parties came to an agreement within 
a few days, and announced the "union of all of the 
new banking companies of Edinburgh " as the Scottish 
National Banking Company. As the subscription 
lists were closed on 8th January, there seems to 
have been no difficulty in completing them. Further 


delays occurred, however, and it was not until 21st 
March that the company got finally started as the 
National Bank of Scotland. The nominal capital was 
5,000,000 (now fully subscribed) in 10 shares. 
At first only 500,000 of the capital was issued. 

The bank seems to have at once commenced a 
branch system, by the establishment of offices in nine 
towns, seemingly rather selected from their geo- 
graphical positions as embracing the whole country, 
than from their business importance. In 1833 they 
had 24 branches; and a continual increase has now 
brought the number up to 115. In 1831 the 
company obtained a Eoyal charter of incorporation, 
granted under the pernicious principle of unlimited 
liability, which at that time commended itself to 
statesmen as superior to the ancient principle of 
limitation, which is now again held, under the light 
of terrible experience, to be the proper constitution 
of corporations. 

Towards the end of 1825, another attempt was 
made in Edinburgh to organise a new bank. 1 It was 
to be on a different footing from the National Bank, 
as it was not intended to extend its operations outside 
the metropolis, but to conduct it as the Glasgow and 
other local banks were then managed. But the events 
of the closing months of the year put an end to the 

The earlier part of 1825 witnessed the climax of 
the speculating spirit which had been working with 
ever-increasing excitement since 1820. The opening 
of the Spanish South -American Colonies, by the 

1 Scotsman newspaper, 26th November 1825. 


achievement of their independence, to British enter- 
prise, had stimulated industry, and had occasioned a 
mania for loans to the new States. These loans are 
estimated at fifteen millions. At the same time, 
bubble companies were rampant, and gambling in 
their shares was excessive. The economic heresy, 
called the mercantile system which proceeded on 
the assumption that the wealth of a nation was co- 
ordinate with its command of the precious metals 
exercised an evil influence at this time. It was 
thought that the boundless natural stores of gold 
and silver in the Spanish colonies had only to be 
tapped by British commerce to secure the wealth of 
the fortunate adventurers. Lord Lauderdale stated 
that the schemes subscribed for amounted to two 
hundred million pounds. From a statement made 
at the time, it would seem that "the accumulation 
of capital which has been progressively going on, 
since the conclusion of the last peace, and the 
difficulty of now investing money to advantage, has 
given rise within these few months to the formation 
of numerous trading companies throughout the 
country, with capitals of from 25,000 to half-a- 
million. In Edinburgh we have a new Banking 
Company, a new Insurance Company, a Wine Com- 
pany, a Porter Brewery Company, an Equitable Loan 
Company, a Whale-fishing Company, Glass and Iron 
Manufacturing Companies, Cotton - Spinning Com- 
panies, and a variety of others which it would be 
tedious to enumerate. No sooner was the prospectus of 
a new scheme laid before the public than capitalists 
and speculatists ran eagerly and filled up the shares ; 


and it was no uncommon thing to see these shares, 
in the course of a day or two, selling at a high 
premium. Much money was lost and won upon this 
kind of lottery." l Of course, in London speculation 
was on a still greater scale. " It is estimated that the 
different new schemes on foot in London amount to 
114, and the capitals to be more than 105,000,000." 
These are enumerated as follows, viz. : 

20 Railroads, with capitals amounting to . 23,950,000 2 

22 Banking, Loan Investment, etc., . . 36,760,000 

1 1 Gas Companies, . . 8,000,000 

8 British and Irish Mines, . . 3,600,000 
17 Foreign Mines, . . 11,565,000 

9 Shipping and Dock Companies, . . 10,580,000 
27 Miscellaneous, . . 11,070,000 

114 in all. 105,525,000 

The turn of the tide took place in the month of 
April. Prices of stocks and shares began to decline, 
calls were made on shareholders, the Bank of England 

1 Scots Magazine, March 1825. The bank alluded to above is, no 
doubt, the National Bank of Scotland. The insurance company 
might be the Scottish Union (now Scottish Union and National) 
Fire and Life, but is, more probably, the Standard Life ; but the 
Thistle, Equitable, and Commercial Marine were also local insurance 
projects of the time. The Wine Company of Scotland continued to 
exist until 1853, when the business was transferred to a private firm ; 
and the pawnbroking establishment spoken of occupies a respectable 
place, at the present time, on the local share list. Other companies 
alluded to are the Edinburgh, Glasgow, and Alloa Glass Company, 
Shotts Iron Company, Scottish Brewing Company, Scottish Wool 
Stapling Company, Waterloo Hotel Company, and Caledonian Dairy 

2 This item is given as 13,950,000 in the original, but is, doubt- 
less, a misprint. 


bullion was ebbing away, and want of confidence 
began to manifest itself. In the three months, April, 
May, and June, nearly 3,000,000 of bullion were 
exported, mostly to the Continent, and it was esti- 
mated that the demands for exportation had reduced 
the stock of bullion in the Bank from 12,000,000, 
on 1st January 1824, to about 4,000,000 at the 
beginning of August 1825. 1 It was not, however, 
until later in the year that palpable evidences of a 
crisis showed themselves. Some private firms suc- 
cumbed, then a few of the English country bankers sus- 
pended payment. Distrust became general ; the panic 
seized London, and every one sought to save himself. 
On Saturday, 3rd December, rumours of difficulties in 
the firm of Pole, Thornton & Co., who, in addition 
to having an extensive London banking business, 
were agents for a large number of provincial and 
Scottish banks, gave point to the excitement. The 
Bank of England advanced 300,000 to the firm, 
and the catastrophe was deferred. 

But on Monday the 12th, no longer able to stand 
the strain on their resources, Pole, Thornton & Co. 
stopped payment. Then the panic rose to a crisis. Stocks 
were unsaleable, and even Government Securities were 
not looked at. Every one who had coin hoarded it. 
For two days 12th and 13th December the finan- 
cial and commercial world was in a state of paralysis. 
On the 14th, the Bank of England came to the front. 
The directors gave assistance right and left to all who 
produced fair security. The crisis passed, and business 
men breathed more freely. The dread of universal 

1 Scotsman newspaper, 3rd August 1825. 

CRISIS OF 1825-1826 197 

ruin was past, and they began to estimate the re- 
sources of their neighbours with some degree of calm- 
ness. 1 notes of the Bank of England were sent 
into the country, to supply the want of specie ; and 
affairs gradually assumed a quieter phase. The 
results of the crisis had, however, been very serious. 
Many bankruptcies had occurred, including some 
London and many provincial banks. It would appear, 
however, from the estimates of liabilities and assets, 
that the English provincial banks who failed had not 
been in so bad a condition as might have been ex- 
pected. Subsequent investigation showed, moreover, 
that wherever the error lay, the note issues had com- 
paratively little to do with their position. 

In Scotland, as usual, the crisis had comparatively 
little immediate effect, although the subsequent depres- 
sion was severe and lasting, as was strikingly indicated 
by the large amount of heritable property which was 
thrown on the market within a few months after the 
crisis. For the most part, business went on as before. 
The . Edinburgh banks seem to have experienced no 
discomfort. An exception must, however, be made in 
regard to Glasgow and the West of Scotland. There, 
if panic did not actually break out, much uneasiness 
was felt in commercial circles. Contemporary accounts 
represent the state of trade and manufactures as very 
bad. Several of the cotton mills were put on half- 
time, and others were verging on the same condition ; 
while the country weavers were in vain seeking em- 
ployment. The Bank of England sent a commission 
to Scotland, under which a sum of 300,000 was to 
be advanced in Glasgow. It was believed at the 


time, that the applications for assistance from this 
body were very few ; and the action of the bank was, 
in some quarters, regarded somewhat ungraciously, 
with true Glasgow independence. The banks were 
not affected; indeed, it is stated that they, and 
especially the Koyal Bank branch, under the manage- 
ment of Mr. J. Thomson, were very efficacious in 
allaying the threatened danger. But, although bank- 
ing in Scotland, as a whole, escaped very easily, it 
was not unscathed. Three banks succumbed. One of 
these was the Caithness Banking Company of Wick, 
whose business was taken over by .the Commercial 
Bank. Another was the Stirling Banking Company, 
with liabilities exceeding a quarter of a million ster- 
ling; but, although it was sequestrated, its eight 
partners paid in full. The worst case was that 
of the Fife Banking Company. It had a capital of 
30,000, and might have done well. It was, how- 
ever, grossly mismanaged, got into difficulties during 
this crisis, and stopped payment on 15th December 
1825. It struggled on, however, under rearrange- 
ments, and did not finally close until 21st May 1829. 
Its affairs were not settled until 1850, owing largely 
to litigation carried to the House of Lords. The loss 
to the shareholders was enormous. Fourteen out- 
standing shareholders paid 5500 per share beyond 
the original amount. The liabilities were met in full. 



IN consequence of the severe financial crisis which 
darkened the close of the year 1825, the Government 
resolved on radical alterations in the banking legis- 
lation of the United Kingdom. In the King's Speech 
on the meeting of Parliament on 2nd February 1826, 
the principal place was occupied by references to the 
embarrassments which had occurred in the pecuniary 
transactions of the country since the close of the last 
session. His Majesty also advised the devising of 
" such measures as may tend to protect both public 
and private interests against the like sudden and 
violent fluctuations, by placing on a more firm found- 
ation the currency and circulating credit of the 
country." The crisis was almost entirely confined to 
England ; but the Government contemplated a move- 
ment towards the assimilation of the paper currency 
of the three kingdoms. Their first task was to intro- 
duce changes in the banking system of England. An 
almost insuperable obstacle, however, presented itself 
in the shape of the special privileges of the Bank of 
England. As far as the public were concerned, the 



worst of these privileges was the prohibition of any 
other company or partnership consisting of more than 
six persons carrying on the business of banking in 
England. This provision was enacted by a clause in 
an Act passed in the reign of Queen Anne, 1708. 
As then understood, the business of banking involved 
the issue of notes ; and this was always considered, 
until 1844, as a distinctive characteristic of bankers. 
Technically, the prohibition was directed only against 
the issue of notes payable on demand, or for any time 
less than six months ; but in the then existing cir- 
cumstances of banking, it effectually precluded the 
establishment of joint -stock banks other than the 
Bank of England. The effect of this had been most 
pernicious, as it checked the growth of strong banks, 
and encouraged the formation of a multiplicity of 
weak ones. 

The Government entered into negotiations with 
the Bank of England for a relaxation of this prohibi- 
tion, and eventually obtained their reluctant consent 
to an arrangement whereby joint-stock banks, consist- 
ing of any number of partners, might be formed, with 
power to issue notes as bankers outside a radius of 
sixty -five miles from London. This provision was 
availed of to some extent ; but it was not until the 
re-enacting and explanatory Act of 1833 that full 
advantage was taken of the power granted. The 
branch system of the Bank of England was also an 
outcome of the proceedings of this time, special powers 
having been conferred by Parliament on the bank 
directors to delegate their powers of management to 
agents. Another important change effected was the 


suppression of bank-notes under the value of 5. The 
Government appear to have been convinced that note- 
issuing was essentially connected with the late crisis. 
As we have already shown, there was not sufficient 
reason for this belief. We do not mean to assert that 
the provincial note issuers were sufficiently trust- 
worthy ; but it appears from the state of the paper 
currency at the time, that there had been no over- 
issue of notes. The Earl of Liverpool, indeed, on 
behalf of the Government, stated that, as estimated 
by the returns of stamps used, the issues had been 
increasing to a great extent ; but the statistics com- 
piled of the actual notes in circulation showed a 
considerable decrease in all the years to which he 
referred, with the exception of 1825. In that year, 
however, the amount was but little above the point at 
which it stood several years before. It was the weak- 
ness of the banks, as prescribed by Parliament in 
favour of the Bank of England, combined with injudi- 
cious banking advances, that led to the numerous 
failures of provincial bankers in England. The en- 
largement of the powers of banking, without the 
suppression of small notes, would have been not only 
sufficient in itself, but would have been more effectual 
in building up the shattered fabric of the deformed 
system of banking with which Parliament had afflicted 
the English nation ; for banks would have been 
enabled to extend their operations into quarters where, 
without the use of small notes, banking would be 

The Government, however, decreed the abolition of 
bank-notes under 5. Before the English Act 


limiting, and, after a certain time, prohibiting, such 
issues was actually passed, Lord Liverpool announced 
that it was intended to introduce a similar measure 
with regard to Scotland and Ireland. In this, how- 
ever, the Government were reckoning without their 
host. When the intelligence reached Scotland, the 
Nemo me impune lacessit spirit was at once aroused. 
The proposal was almost universally denounced as an 
infringement of the rights of the nation, and as 
injurious to its interests. Sir Walter Scott's magic 
pen was enlisted in the cause. His celebrated letters, 
under the nom de plume of " Malachi Malagrowther," 
although taking too roseate a view of Scottish banking 
experience, gave point to the national excitement, and 
undoubtedly tended greatly to focus the opposition. 
At the same time, they excited the most extraordinary 
criticism in Parliament and elsewhere, as calculated to 
foster rebellion. The agitation was carried on warmly 
at county meetings, where speeches in favour of the 
bank-note issues were made, and resolutions un- 
animously passed disapproving of the proposed change. 
As showing the thoroughly convertible nature of 
the notes, Mr. Gibson- Craig stated, at a meeting of 
the county of Edinburgh, that " It was only the other 
day that Mr. Maberly's house here had collected 
30,000 of Edinburgh bank-notes, and presented 
them for payment, when gold was tendered in ex- 
change. He said this was not what he wanted, but 
bills on London ; but he was told that the promise on 
the face of their notes was to pay gold, which they 
would pay, and nothing else." 1 He also referred to 

1 Edinburgh Magazine, March 1826. 


the bank failures which had occurred, and showed that 
the note issues were in no way connected therewith, 
and that the country had suffered no loss. The 
position of the Scottish banks was also warmly 
defended in a number of pamphlets which appeared 
at the time of this attack on one of their most vital 
characteristics. Indeed, the excitement produced by 
the well-meant but misdirected attentions of the 
Government was the means of producing in Scotland, 
for the first time, anything which could be called 
financial literature. The Scottish newspaper press, 
with a few exceptions, strongly advocated the reten- 
tion of the small-note issues. The Scotch and Irish 
members strenuously opposed the intended legislation, 
and successfully insisted on the appointment of a 
committee of each House of Parliament to inquire 
into the utility of small notes in Scotland and Ire- 
land. The committees examined a number of 
witnesses, and reported against the proposed change. 
On the 8th of May, the Government confessed that 
they had been convinced of the advisability of leaving 
the note issues of Scotland and Ireland on their 
present footing. 

In looking back on this episode, while one may 
smile at the intensity of the excitement, and especially 
at its peculiarly Scottish national character, as seeing, 
in an honest endeavour of the Government to improve 
the currency system, an instance of Southern treachery, 
one cannot but recognise the fact that the people were 
right, and that it was well for Scotland that the 
intended change was prevented. The paper currency 
of Scotland had been of the greatest service in 


furthering the industries of the country. The total 
amount of loss by the note issues of defaulting banks 
had been surprisingly small. In point of fact, the 
banking system of Scotland had worked remarkably 
well, and there was positively no occasion to make 
any legislative alteration in it, as far as the nation 
itself was concerned. At least, any changes which 
might have been advantageously introduced had no 
connection with the system pursued, or with the state 
of the paper currency. The object of the proposed 
measure was to secure uniformity in the currency of 
the three kingdoms. This was a desirable enough 
object, if it could have been attained without undue 
sacrifice. The price the Scotch and Irish people were 
asked to pay was, however, too much, seeing they were 
called on to sacrifice an essential portion of their 
existing system without obtaining any benefit in 

At the present day the circumstances of the case 
are somewhat altered. Even as late as 1826, the use 
of a paper currency, which had been originally the 
great instrument in vitalising the industrial energies 
of Scotland in its poverty-stricken condition, still con- 
ferred some of its old benefits, although the nation 
had become comparatively wealthy. With still further 
increase in wealth, and with the restrictions imposed 
on note-issuing by the Acts of 1844 and 1845, the 
direct benefits of a bank-note currency have well nigh 
vanished. Statesmen appear to be very ignorant on 
this point ; for, even at the present time, they speak 
as if the mere fact of retaining an issue of 1 notes 
would satisfy the necessities of Scotland. It is not 


the fact that Scotland possesses a paper currency of 
the denominations of 1 and upward that confers a 
special benefit on the nation. It is the fact that the 
banks are permitted to issue such a currency that 
forms the advantage. Without this right, the char- 
acter of banking in Scotland would be greatly altered ; 
the banks would be forced to contract the extent of 
their operations; banking facilities would be with- 
drawn from a great number of localities presently in 
the enjoyment of them ; and the customers of banks 
would probably have to pay increased charges. The 
reason of this is that, by means of their right to issue, 
the banks can profitably conduct business at a much 
cheaper rate than if they had to use coin of the realm, 
or what would be substantially the same, as far as 
the present argument is concerned Government or 
Bank of England notes, for which they would have to 
give full value. This is the great point involved at 
the present time in the question of Scottish bank-note 
issues, and it deserves very full consideration by 
members of Parliament. But, in 1826, this indirect 
advantage was not alone in operation ; the direct 
benefits conferred on a comparatively poor country by 
an efficient paper currency were also active. So 
popular were the notes of the Scottish banks not 
only in Scotland, but also in the northern counties of 
England that, during the height of the crisis, large 
quantities of them were forwarded to these districts, 
where, it is said, " they are equally as valuable as the 
paper of the Bank of England." As to Scotland, the 
writer adds, " So general is the feeling of security in 
this country, that even the most ignorant people have 


scarcely ventured to consider it possible that the dis- 
tress at present existing in the English capital could 
extend to this side of the Tweed." l It was well, 
therefore, that the banks in Scotland were allowed to 
continue their long -established and well -appreciated 
custom of issuing 1 notes. 

So conspicuously was the superiority of the con- 
stitution of the Scottish banking system over that of 
England shown to be by the experience of this crisis, 
that, as we have seen, the Government tried, as far as 
possible, to extend its principles to the sister kingdom, 
by encouraging the formation of large joint -stock 
banks. The attempt proved highly successful, despite 
the difficulties presented by the consequences of 
previous banking legislation. Several banks, which 
have since become very powerful institutions, were 
soon afterwards formed. In this connection, a writer, 2 
who was himself a practical and successful banker, 
and took an active part in the projection of joint- 
stock banks in London, very clearly showed the 
advantages which were derivable from adopting 
Scottish principles, by contrasting the experience of 
the systems of banking pursued in Scotland and 
England respectively. He further showed, what has 
never been fully appreciated by English statesmen, 
that paper currency, payable in gold on demand, 
cannot be issued at pleasure ; and that the freedom 

1 Scots Times (Glasgow), 24th December 1825. See also Maberly 
Phillip's Banks, Bankers, and Banking, London, 1894, pp. 100-1, 
and Boase. 

2 Principles and Practice of Banking, T. Joplin, London, 1826. 
The author founded, and was the first secretary of, the Provincial. 
Bank of Ireland. 


of Scottish banking, by permitting the growth of a 
system of large joint-stock banks, had preserved the 
northern kingdom from the disastrous experience 
which had attended banking in England. On the 
other hand, he made the curious statement, that 
privacy was the cause of the success of the Edinburgh 
banks. By this he means that they were enabled to 
amass large profits by speculation in the public funds. 
This was undoubtedly the case; but the success of 
the system cannot, of course, be used as an argument 
against the publicity which is now rightly desiderated. 
Another English banker, 1 who, however, is by no 
means so complimentary to the Scottish bankers, 
denounced the past course of banking legislation 
with much vehemence, but with, perhaps, less dis- 
cretion. The following quotation, from a more 
pleasing writer, 2 is interesting as an appreciative 
contemporary statement of the advantages of a paper 
currency : " It has been proved that all the parties 
who make use of money for purposes of interchange, 
buyers as well as sellers, share in the great advantages 
derived from the substitution of paper for metallic 
money. Consequently, there can be no doubt that, 
by universal consent, the former will be used in 
preference to the latter, whenever the security offered 
for the convertibility of notes on demand is such as 
to ensure the public confidence. Thus it has been 

1 The Scotch Banker, Thomas Attwood, London, 1828. Mr. 
Attwood was a banker in Birmingham. He writes fiercely against 
the Scottish banks, styling them "monopolising and engrossing," 
and ascribes their comparative immunity from disaster to their not 
being pressed. But why were they not pressed ? 

2 Credit Currency, G. Poulett Scrope, London, 1830. 


ascertained from experience, that gold and paper 
money of the same denominations will not circulate 
together. ' The paper drives out the gold.' This has 
been, somewhat absurdly, made a matter of regret by 
those who fail in perceiving that it only takes place 
in consequence of the vast benefit which a paper 
currency confers on all producers, by enabling them 
to retain and employ that part of their capital which 
would otherwise be locked up in a metallic currency. 
So far from being a defect, it is the great merit of 
a paper currency, without which, indeed, it could 
neither be introduced into circulation, nor of any 
service were it introduced." 

As the bogey of over-issuing is still raised against 
the Scottish banks from time to time, it may be well 
to point out that, under a system in which the notes are 
payable in legal tender on demand, with regular and 
frequent exchanges among a plurality of banks, wide- 
spread over the country, such as exists in Scotland, 
over -issuing is practically impossible. Any bank 
attempting to issue beyond the natural demand of 
the public, would find its notes coming back on 
it so rapidly that it would be forced at once to 
cease such action. The notes would not stay out; 
and the other banks would soon bring their erring 
brother to book. 




THE period which falls to be treated of in the present 
chapter extends from the crisis of 1825-6 to the 
death of King William IV. in 1837. It is a well- 
marked illustration of the theory of cycles in financial 
and commercial experience. From 1827 to 1832 
there was commercial depression, consequent upon 
the sufferings and losses of the preceding crisis. 
With 1833 there came a change for the better 
activity and enterprise were abundantly manifested, 
and prosperity shone on the land. Then followed 
renewed confidence, drifting into speculation, and cul- 
minating in the inevitable crisis. In its political 
aspects, the period is noticeable for the almost 
profound peace which Britain enjoyed, the only 
important exception being a short conflict with 
Turkey in 1827, when the battle of Navarino, 
fought by the allied squadrons of Britain, France, 
and Eussia, gained the independence of Greece. In 
the earlier years of the period, much distress pre- 
vailed among the working classes, which broke out 



in riots, among which those at Bristol, in the autumn 
of 1831, acquired pre-eminence. The Corn Laws 
were pressing heavily upon the people by maintaining 
the price of bread. The sliding scale of duties intro- 
duced in 1828 may have mitigated the sufferings ; 
but the high price of corn was in itself a sufficient 
affliction. The cholera epidemic of 1831-2 found 
the country in an unfavourable condition for resisting 
such a scourge. Meanwhile, however, the spirit of 
mechanical enterprise, to which we have referred in 
previous chapters, continued to develop. Following 
on the establishment of oceanic steam communication, 
the foundation of the great system of railways was 
laid on 15th September 1830, by the opening for 
traffic of the Manchester and Liverpool Eailway ; and 
the application of steam power to various departments 
of industry was continually on the increase. The 
final abolition of Colonial slavery, the rapid increase 
of periodical literature, Parliamentary reform, the 
manifestation of the power of trade-unionism, and 
the adjustment of the Poor Laws, were other notable 
features of the period. 

In the department of banking a rapid development 
took place. This is specially noticeable subsequently 
to 1833, when the Bank of England Charter Act 
was passed. By it the formation of joint-stock banks 
in London and the provinces was greatly facilitated. 
The Act of 1826, dealing with this matter, does not 
seem to have been explicit enough, or sufficiently wide 
in its provisions. Under the powers of the new Act, 
however, a mania for joint-stock banks sprang up, and 
this species of investment was greatly overdone. In 


1835 and 1836 upwards of one hundred new banks 
were established in England and Wales alone, and 
thirteen in Ireland. In 182*7 the directors of the 
Bank of England adopted an important resolution for 
the conduct of their business. This was, that in 
future the foreign exchanges, the variations in which 
had been systematically ignored since 1819, should 
be deemed a necessary factor in their calculations. 
Under a provision of the Act of 1833, moreover, 
they were required to publish a weekly statement of 
the position of the bank. 

Turning to Scotland, which is the main subject of 
our record, there is much to chronicle. In 1826 
there appear to have been about thirty-four individual 
banks, of which several had numerous branches, and 
most had some. The total number of offices is stated 
as 167, or 1 to every 13,000 inhabitants. An 
evidently very loose estimate of the deposits held by 
these establishments places the amount at from ten 
to twenty -five millions sterling; but two estimates 
which seem to have been thought competent give 
20,000,000 and 24,000,000 as the amount. 
Such calculations are, of course, of little practical use ; 
but they show, at all events, the ideas of magnitude 
in banking business held at that time. The par of 
exchange on London was 20 days, to which it had 
been reduced from 40 or 50 days, by the action of 
Maberly & Co. Gold and silver were scarce; and it 
is probable that a permanent issue of 5s. notes would 
have been very serviceable; but the banks do not 
seem to have favoured denominations under 1, 
perhaps because the trouble and expense would have 


been more than the profit. Of these banks, several 
passed out of existence during the succeeding ten 
years. In 1829 the Montrose Bank, which had been 
established in 1814, was amalgamated with the 
Dundee Union Bank. The firm of James & Eobert 
Watson foiled in 1832. The house had been estab- 
lished in Glasgow in 1*763 by David Watson, the 
later firm dating from 1793. At the time of their 
failure this firm were agents for a large number of 
banks; and it would seem that this department of 
banking constituted the main part of their business ; 
but they are stated to have held the greatest amount 
of agency business of any bank in Glasgow. 

In 1831 their office was robbed by London thieves. 
The robbery took place "on Sunday, 26th December 
1831. The thieves escaped with their booty, but one 
of them, William Heath, was afterwards captured, 
tried, and executed. While under sentence of death, 
this villain confessed that he had nearly committed 
murder. One Sunday before the robbery, he was in 
the bank trying the false keys, when one of the 
gentlemen of the bank came in. The robber had 
only time to glide behind a door. He saw the 
gentleman sit down, read a letter, and afterwards go 
out. The robber had a drawn dagger in his hand, 
and declared that if the gentleman had discovered 
him, he would at once have stabbed him to the 
heart." 1 Whether owing to this disaster, or to 
unsoundness in their business arrangements, they 
stopped payment in June of the succeeding year. 
The two Edinburgh firms of Thomas Kinnear & Sons, 

1 Banking in Glasgow, p. 42. 


and Donald Smith & Co., amalgamated their business 
in 1831 as Kinnears, Smith & Co. This arrangement 
ended, however, three years later by the failure of the 
new firm, with about 320,000 of liabilities an 
event which caused a considerable run on one or two 
of the other private banks in Edinburgh. 1 In 1832 
the exchange and deposit firm of J. Maberly & Co., 
who were also manufacturers in England, closed their 
doors after an existence of fourteen years. Their 
business was an important one on account of the 
number of offices at which it was conducted, and the 
active competition they carried on with the Scotch 
banks proper. The failure disclosed a large deficiency. 
The Commercial Banking Company of Aberdeen amal- 
gamated with the National Bank of Scotland in 1833. 
The private firm of Kobert Allan & Son, established 
at Edinburgh in 1776, stopped payment in 1834, 
with about 108,800 of liabilities. 2 About the same 
time, the younger firm of James Inglis & Co. 
(formerly Inglis, Borthwick, Gilchrist & Co.) also 
failed, their liabilities being stated at 23,000. It 
is probable that these events were connected with the 
failure of Kinnears, Smith & Co. just alluded to. 

The Thistle Bank Company, established at Glasgow 
in 1761, amalgamated in 1836 with the Glasgow 
Union Bank. Another event of that year was the 
absorption of the Perth Union Banking Company by 
the National Bank of Scotland. Next year Messrs. 

1 Taifs Edinburgh Magazine, September 1834. This firm issued 
notes of the Bank of Scotland only. 

2 They did not issue their own notes, but used those of the Royal 
Bank exclusively. 


Kamsays, Bonars & Co., private bankers in Edinburgh, 
withdrew from business. It is understood that their 
business had not, latterly, been of a favourable character; 
but their retirement was quite voluntary, and the 
business was wound up by themselves. 1 In November 
of this same year, the Paisley Banking Company, on 
the expiry of their contract of copartnership, made 
over their business, which included branches at Glasgow, 
Irvine, and Stranraer, to the British Linen Company. 
An important amalgamation, which took place in the 
same year, was that of the old Ship Bank and the 
Glasgow Bank Company, under the designation of the 
Glasgow and Ship Bank. 

It will thus be seen that the period with which we 
are at present dealing witnessed the extinction of an 
unusual number of banking companies. It would seem 
as if those companies who, either from the smallness 
of their business, or from old-fashioned habits of mind 
on the part of their managers, were unable to adapt 
themselves to the altered and continually expanding 
circumstances of the country, were destroyed or 
swallowed up by their larger or more vigorous rivals. 
The doctrine of the survival of the fittest came power- 
fully into play amid the rapid development of the 
national industries, fostered by the achievements of 
mechanical skill. But while old banks disappeared, 

1 Mr. Wenley gives the date as 1834 ; but the circular, stating that 
the "surviving partners, having determined to retire from business, 
hereby intimate that they will cease to receive any money on deposit, 
or to issue notes," is dated 6th February 1837. The business was 
continued for the convenience of customers, 3 per cent interest being 
allowed to depositors. Notes were to be retired on presentation 
either at their own office or at the Bank of Scotland. 


new ones arose ; and the system of branches received 
a great impetus. The single office system appears to 
have been discarded almost entirely by the older 
establishments, and all the new banks seem to have 
considered branches as indispensable to their business. 
Private banking also was rapidly dying ; and, although 
a few firms survived this period, their real character 
was almost always veiled under a local designation. 
The old system of local, or, at best, district, banks, was 
rapidly giving way before the modern system of broad- 
based establishments, partaking to a greater or less 
extent of a national character. Greater safety and 
economy in management were thus secured ; but the new 
system, in its now largely-developed form, while in the 
main more satisfactory than its predecessor, has not been 
without its disadvantages to the trading community. 

In the earlier years of the period under review, the 
great depression existing in connection with trade and 
finance prevented the formation of any new establish- 
ments, and very few new branches were opened. In 
1830, however, the Ayrshire Banking Company, with 
a head office at Ayr, and five branches in the county, 
was established. A still more important movement 
was the formation of the Glasgow Union Bank, with 
branches at Edinburgh, Greenock, and Bathgate. Its 
capital was 350,000, held by 488 partners. By the 
rapid absorption of a multiplicity of large and small 
banks throughout the country, this bank fairly justified 
its name, and fully earned the designation of the Union 
Bank of Scotland, assumed by it in 1843. 

Another great bank was formed in Glasgow in 
1832, whose growth was still more rapid than that of 


the Union, and whose career was destined to secure to 
it a more unenviable notoriety than any of its prede- 
cessors had procured. The Western Bank of Scotland 
commenced business on 2nd July 1832. At its 
annual balance on 29th May 1833, the capital is 
placed at 209,170, held by 430 partners. From 
the outset it was managed with great activity, and it 
soon distanced its contemporaries in the growth of its 
business. But it achieved this result by setting at 
defiance the soundest principles of good management, 
in the face of the of ten -repeated remonstrances of 
friends and rivals; until, twenty -five years after its 
establishment, it became a wreck, such as had never 
been seen previously in the financial history of Scot- 
land. So innate do vicious principles of management 
appear to have been to it, that little more than two 
years after its formation we find that the London 
house of Jones, Lloyd & Co. declined to honour their 
drafts, and the Edinburgh banks refused to receive 
their notes, remonstrating with them in lengthened 
correspondence as to their action, and particularly as 
to their omission to maintain a sufficient cash and 
investment reserve. At length a reluctant consent 
appears to have been obtained from them. The 
manager was dismissed; and it may be presumed 
some show of amendment was made. 

Two years later than the Western Bank, the 
Central Bank of Scotland, with a capital of about 
80,000, was established, with its head office in 
Perth. The North of Scotland Banking Company 
was formed in Aberdeen in 1836. In the same year 
an attempt was made to establish another bank in 


Glasgow. This was the City Banking Company of 
Glasgow. The attempt, however, proved abortive, 
owing, in all probability, to the doubt and hesitation 
prevailing among business men, as events tended to- 
wards the crisis which burst upon the nation soon 

Among other events deserving record was the pass- 
ing of the Act 9 Geo. IV., c. 65, in 1828, by which 
the circulation in England of Scotch or Irish small 
notes was prohibited. The restriction did not extend 
to notes of 5 and upward. The Eoyal Bank of 
Scotland obtained, at the close of 1829, a new warrant 
of charter, by which it was empowered to increase its 
capital to 2,000,000. This power was exercised 
early in 1831, by appropriating 100,000 of reserved 
profits, and making a call of 400,000 on the pro- 
prietors. 1 In 1831 the Commercial Bank and the 
National Bank obtained charters of incorporation. 
This judicious step was sadly marred by the adoption 
of the new principle, which had recently been obtaining 
general acceptance, of attaching unlimited liability to 
the stock of Corporations. The amount of branch 
extension which occurred during the period with which 
we are at present dealing was extraordinary. Not 
only did all the new banks open branches, but the 
older banks, with the exception of the Eoyal Bank, 
which steadily refrained for long after this time from 

1 The immediate cause of this movement, which was hardly justi- 
fied on principles of financial expediency, was (according to office 
tradition) an impression that the Government contemplated the 
abolition of the bank-note issues, and the substitution of a State 
issue, in which event a large capital might secure special privileges 
in the conduct of the new system. 


establishing a general branch system, spread their 
agencies over the land with great rapidity. About 
one hundred and ten new offices were opened, of 
which about 93 were branches of banks existing 
previously to 1827. But while the Scottish banks 
were more or less affected by the prevailing excite- 
ment, it may be doubted if the following newspaper 
paragraph of the time was founded on fact. It is, 
however, interesting as a contemporary record: 
" Extract from a private letter from London. ' We 
have heard from good authority, that it is the intention 
of the Bank of Scotland, as well as the Koyal Bank of 
Scotland, to follow the example of the Dundee Union 
Bank, and to immediately establish branch banks in 
London, for the purpose of circulating their notes.' " l 

As we have already indicated, the turning point of 
the period was the year 1833. From that time an 
active spirit of speculation set in, the main subject of 
which was joint-stock enterprise. In this department 
railways began to attract the favourable attention of 
promoters and investors ; but the railway mania proper 
belongs to a somewhat later date. Of the many forms 
which speculation assumed, the favourite was joint- 
stock banks. But numerous other species of companies 
were promoted. It has been estimated that, in the 
years 1834-5-6, the new companies projected involved 
nominal capitals to the extent of two hundred million 
pounds sterling. 2 But it was not thus alone that the 
speculative spirit found vent. Owing to the higher 

1 Courant, 10th July 1834. 

2 " No fewer than 119 new companies have been started in London 
during the last year (1835). Of these, 41 are mining companies, 35 


rates of interest offered in America, large quantities 
of United States securities were greedily absorbed in 
this country. This led to a continuous and heavy 
drain of gold from the Bank of England, which, despite 
the efforts of the bank to stem it, reduced the reserve 
to a low point. 

The first actual disturbance began in Ireland in 
the autumn of 1836, by the suspension of the Agri- 
cultural Bank. It appears to have been a badly- 
managed concern. One or two of the few Irish private 
banking firms which had survived the crisis of 1820 
also gave way. English bankers became alarmed, and 
their precautions led to a still further reduction of 
the stock of bullion in the bank of England. A lull, 
however, took place ; but, in March of the succeeding 
year, the storm which had been brewing burst over 
England and Scotland. Many bankruptcies occurred ; 
but the recorded number for 183*7 is not so much 
above the general average as might have been sup- 
posed, from the active speculation which had been 
carried on. Of the failures in England, few appear 
to have been of bankers. The most notable bank 
failure was that of the Northern and Central Bank 
of England. It had only been in existence for about 
three years. Another case was that of the Norwich 
and Norfolk Joint-Stock Bank ; but it was a compar- 
atively small affair. In neither case do the creditors 
seem to have lost, and the shareholders did not suffer 

for the establishment of railways, and 43 miscellaneous. The nominal 
capital is Mines,2,994,000 ; railways, 34,040,000 ; miscellaneous, 
19,811,000 ; total, 56, 845,000. "Edinburgh Chronicle ,6ih February 


very severely. We have already detailed the banking 
events which occurred in Scotland at this time, from 
which it will be seen that the crisis fell lightly on 
Scottish banking. 

Among minor incidents within this period men- 
tion may be made of the loss of a remittance by the 
Bank of Scotland. On 27th February 1826 the smack 
Delight, on her passage from London to Leith, struck 
a sunken wreck off the Norfolk coast, and foundered 
in fifty feet of water. The passengers and crew took 
to the boats, were picked up and taken into Yarmouth. 
But a valuable cargo, and specie amounting to 4500 
in gold and 500 in silver, going to the Bank of 
Scotland, were lost. As the remittance seems to have 
been insured, it is probable that the bank was reim- 
bursed. In this year an Act was passed which must 
have been of considerable service to the unincorporated 
banks. This was 7 Geo. IV. c. 67 (not c. 46, men- 
tioned previously), to regulate the mode in which 
certain societies or copartnerships for banking in Scot- 
land may sue and be sued. It provided that all banks 
of issue, except the chartered banks, should enter on 
oath their names, and the name and abode of every 
partner and manager, in the books at the stamp office 
in Edinburgh, which were to be open for public inspec- 
tion ; and in the course of the year similar entries 
were to be made of any change of partners or officers. 
It also provided that such banks might sue and be 
sued under the names of their office-bearers. The 
introduction of the system of closing bank offices 
earlier on Saturdays, so as to allow the employes a 
weekly half-holiday, seems to have commenced about 


1827. It may also be noticed that notes of the 
Scottish banks for 1 appear to have circulated freely 
in the north of England until 1828, when the Act 
9 Geo. IV., c. 65, prohibiting them, was passed. The 
issue of them in England was already illegal, but not 
their circulation. The change was not accomplished 
without opposition, numerous petitions and other 
representations in favour of the practice being pre- 
sented to Parliament. A modification of the usury 
laws was made by the Bank of England Charter Act 
of 1833, and was extended, and made permanent, by 
subsequent Acts in 1850 and 1856. 

Allusion may here be conveniently made to the 
system of settling exchange balances. Until 1834 
this was done by the debtor banks giving drafts on 
London at ten days' date for the amounts due by them. 
But in consequence of the stoppage of a private bank 
in Edinburgh (presumably Eobert Allan & Son, to 
whom we have just referred), while many of the other 
banks held its drafts, Mr. Blair, treasurer of the Bank 
of Scotland, proposed that the balances should be 
settled by exchequer bills, similarly to the practice 
of the London Clearing House. The bills were for 
1000 each, the fractional parts of the balances being 
paid in Bank of England notes and specie, and latterly 
in notes of the three old Scottish banks. Each bank 
was to hold an agreed-on quota of bills. This system 
was adopted, and continued in practice for many years. 
But it was an inconvenient arrangement, and eventu- 
ally a return was made to the older plan, in a modified 
form. The system is still, or was until recently, in 
use in Dublin, among the banks of issue. 



WITH the accession of Queen Victoria to the throne 
of Great Britain, on 20th June 1837, commenced a 
new era in the history of the country. From that 
date onward there has been a triumphant progress 
of more remarkable development of industry, science, 
and social improvement, than history records of any 
former age. The beginnings of this social revolution 
have been indicated in previous chapters as con- 
current with the century ; but it was reserved for the 
Victorian era to achieve its development. The appli- 
cation of steam to navigation and manufactures had 
accomplished a mighty work, but the connecting link 
was wanting so long as inland transit was conducted 
under the slow and laborious methods of highways 
and canals. When steam railways became an estab- 
lished system, men's eyes were opened ; and from 
thenceforth they thought and acted with an independ- 
ence and activity they had never formerly displayed. 
Improvements in every department of business and 
social relationship succeeded each other with unin- 
terrupted rapidity. 



The general condition of the country, however, at 
the time with which we are at present dealing, was 
not yet one of emancipation. Men's eyes were indeed 
opening to the realisation of brilliant possibilities, 
but they failed not also to see intolerable evils around 
them. The achievement of constitutional liberty in 
1832 had, as yet, done little beyond making the 
nation conscious of its power to accomplish its own 
emancipation. But when that consciousness had 
been attained, the good work sped apace. Deterrent 
influences were, however, at work. Wars in China 
and India costly and, at times, very disastrous; 
Chartist riots and Irish troubles; industrial and 
agricultural distress and disturbances, and a high 
rate of bankruptcies, followed, for a few years, the 
effects of the crisis of 1837. But the national 
appreciation of railways was not to be checked in 
its manifestation. A mania for investment in railway 
undertakings set in, resulting in a much more rapid 
expansion of the system than the circumstances of 
the country warranted. Trade was thus stimulated, 
both directly and indirectly, to an unusual extent. 

The position of banking in Scotland at the close of 
1837 was as follows : There were five chartered banks, 
with aggregate capitals amounting to 4,600,000, on 
which dividends averaging six per cent were paid. 
Five other joint-stock banks had capitals amounting 
to 1,550,000, on which the dividends averaged 
slightly less than six per cent. These ten banks had 
213 branches, of which the chartered banks held 158. 
There were, besides, other seven joint-stock banks, 
and seven private banks, with 37 branches. This 


gives a total of twenty-four banks, with 2*74 offices. 
The average circulation of these banks does not appear 
to have much exceeded three millions sterling, the 
small notes forming about two -thirds of the total 
amount. The amount of the deposits was estimated 
at twenty -five millions; but little weight can be 
attached to a calculation which, in the absence of 
official information, must have been largely founded 
on imagination. The average price of the stocks of 
the chartered banks was 178 per cent, and such of 
the shares of the other banks as -were quoted stood 
at high premiums. 

In 1838 the affairs of the Western Bank of Scot- 
land again came into prominence. The experience 
of the recent crisis, combined with the results of 
injudicious banking in America, and the public atten- 
tion which was increasingly bestowed on banking, 
led the Edinburgh banks to consult with the other 
banks in Scotland as to the advisableness of per- 
manently maintaining large reserves of coin and 
Government securities, in order to secure the proper 
conduct of banking in Scotland. It may be presumed 
that there was a consensus of opinion on this point ; 
but it was a wise and even necessary step that nego- 
tiations on the subject should be held, considering 
that one powerful establishment had hitherto ignored 
the principle. This was the Western Bank of Scotland. 
They had a paid-up capital of 600,000, on which 
a dividend of five per cent was paid, and they had 
seventeen branches throughout the country. Four 
years previously they had been remonstrated with on 
the same matter, on an application by them for 


assistance. They had then given a reluctant adhesion 
to the practice, and had obtained large advances to 
enable them at once to carry it out. But, the im- 
mediate necessity past, they appear to have relapsed 
into their bad habit. When the Edinburgh banks 
again remonstrated in 1838, they defended them- 
selves on the grounds that investments of a fluctuat- 
ing character should be avoided, and that the fostering 
of the trade of the country was their first duty. The 
banks then intimated that after 21st July they would 
decline to take Western Bank notes, unless their 
wishes were complied with. After further negotia- 
tions the Western Bank again undertook to conform 
to the practice of investing in Government stocks, 
and the Edinburgh banks withdrew their resolution. 
Later in the same year the Western Bank applied to 
the Crown for a charter of incorporation ; but, on 
representations by the Edinburgh banks, based on 
the tenor of the correspondence referred to, the appli- 
cation was refused. 

During the year 1838, six new joint-stock banks 
were established in Scotland. Of these, the most im- 
portant, as viewed from the present time, was the 
Clydesdale Banking Company in Glasgow, with a 
paid-up capital of 375,000, in 20 shares with 
10 paid. Three years later its paid-up capital was 
500,000, and the shares sold at 12: 17s. At 
first its only branch office was in Edinburgh. The 
only other bank started in this year, which has 
survived to the present time, is the Caledonian 
Banking Company in Inverness. It began with a 
capital of 125,000, one quarter of which was paid 



up. It would appear that its projection met with 
serious opposition in some quarters, but that, never- 
theless, its shares were popular with the public. In 
1841 the paid-up capital was 75,000, and the 
2: 10s. shares sold at 3. The Eastern Bank of 
Scotland was a hurriedly-organised concern, destined 
for a special purpose. That purpose was to take over 
the business of the Dundee Commercial Bank, whose 
affairs had got into a hopeless condition, before the 
state of the latter bank should , become public. This 
object was successfully accomplished, and the Eastern 
Bank of Scotland commenced business in July 1838, 
with a paid-up capital of 112,510. The chief 
office was in Dundee, but there was also a nominal 
head office in Edinburgh. 

A still more important establishment was the 
Edinburgh and Leith Bank. It is stated to have 
been designed for the benefit of the "industrious 
middle class," and it at once sprang into popularity. 
A contemporary writer says of it" A great deal of 
speculation took place in the stock of the Edinburgh 
and Leith Bank. The shares went to 5s. premium as 
soon as they were in the market, and 2000 or 3000 
shares have been known to change hands in the 
course of a single day. It is now (1841) one of the 
most popular banks in Edinburgh, and sells at a high 
premium." 1 Its capital was 500,000 in 5 shares 
fully paid. It had six branches. In 1844 it was 
re-organised as the Edinburgh and Glasgow Bank, at 
which time the Glasgow Joint-Stock Bank joined it, 

1 Manual of the Scottish Stocks and British Funds, p. 22, by John 
Reid. Second edition. Edinburgh, 1841, 


with a paid-up capital of 1,000,000. No bank had 
better chances of a long and prosperous career than 
this one. Starting with popularity, it rapidly obtained 
a large deposit business. Its authorised circulation 
under the Act of 1845 was 136,657, which was 
much in excess of that of any other bank of its own 
age. But antagonistic management between the 
western and eastern offices, and incompetent direction 
under the two boards, which the Edinburgh directors 
were too feeble and ignorant of financial business to 
control, occasioned the losing of the golden opportunity. 
Heavy losses were incurred; the bank's credit was 
affected during the crisis of 1857, and next year its 
valuable business, together with the large authorised 
issue, passed into the hands of the Clydesdale Bank 
by amalgamation, in which the shareholders gained 
nothing except relief from a responsibility which never 

The Paisley Commercial Bank was also formed in 
1838. Its capital was 200,000 in 20 shares, one 
half being paid up. After a short career it was merged 
in the Western Bank. Another venture of this year 
was the Southern Bank of Scotland, with its head office 
in Dumfries. Its projection was coldly received, but 
it would seem that its shares went to a premium very 
soon. It had a capital of 500,000 in 20 shares, 
with 5 paid. In 1841 its shares, with a five per 
cent dividend, were at 2s. 6d. premium; but on 31st 
October next year it was fain to find rest from incom- 
petent management in the bosom of the Edinburgh 
and Leith Bank. It had seven branches. 

Next year (1839) the prospectus of a new bank 


in Glasgow was issued, in which it was observed " It 
is not a little astonishing that, notwithstanding the 
rapid strides which commercial enterprise has taken in 
Glasgow (and a correct idea of its extent may be 
formed by a glance at the shipping arriving at the 
harbour, the revenue from which, during the last 
thirty years, has increased from 1000 to nearly 
40,000 during that period), only three new banks 
have been formed in Glasgow, all of which have been 
eminently successful." This new financial venture, 
designed to make amends for want of enterprise in 
former years in accommodating the expanding trade of 
the great western community, and intended as an 
addition to the roll of brilliant banking successes, was 
the now world-known City of Glasgow Bank. It had 
a capital of 750,000 in 10 shares, of which 
656,250 was paid up by the middle of 1841, the 
price then being 9 : 10s. for 8 : 15s. paid per share. 
The lamentable manner in which this bank failed to 
realise its intentions, as expressed by its promoters, is 
now only too well known. It suspended payment for 
thirty-three days during the crisis of 1857, having 
succeeded, during the eighteen years of its existence, in 
laying the foundation of a style of bank management 
peculiar to itself. Having tided over its difficulties, 
it resumed the practical study of those economic 
theories, the full development of which won for it, 
twenty-one years later, greater notoriety than had ever 
previously fallen to the lot of any business establish- 

The Glasgow Joint-Stock Bank and the Greenock 
Union Bank were formed in 1840. It is stated that 


the projection of the former bank "met with great 
encouragement, and the applications for shares were 
very numerous." In 1841 it had a paid-up capital 
of 562,500, and its shares stood at a fair premium. 
As already stated, it joined the Edinburgh and Leith 
Bank, in 1844, as the Edinburgh and Glasgow Bank. 
The Greenock Union Bank had a paid-up capital of 
125,000. Its shares sold at a discount soon after 
it commenced business. It joined the Clydesdale 
Bank in 1844, after a good deal of coquetting with 
both them and the Western Bank. The Glasgow 
Banking Company (the second of similar name) 
was formed, or at least promoted, towards the close 
of 1843, but it does not seem to have commenced 
business until the next year. At all events, it 
is said not to have issued notes prior to 6th May 
1844, and consequently to have been unable to 
secure the right of note-issuing in terms of the pro- 
hibition of the Act of 1844 applied to banks which 
were not issuing at that date. It may be that the 
average issue was so small as to be considered 
practically worthless, no value being placed at that 
time on the right to issue against coin in reserve. 
When the Act of 1844 was passed, it amalgamated 
with the Western Bank. 1 That it was considered of 
importance is evident from the facts that its shares at 
once went to a considerable premium, that it was said 
to have secured 800 shareholders, and to have met 

1 Banking in Olasgoic during the Olden Time, p. 32. Glasgow, 1862. 
See also Boase, second edition, p. 425. Logan, second edition, p. 24, 
states the National Bank Glasgow branch scheme as having been 
carried out, which is an erroneous anticipation. R. Allan's Share 
Circular of 30th November 1843 gives details of the scheme. 


with warm support in Glasgow. Moreover, so strong 
an institution as the National Bank appears to have 
contemplated its acquisition as their Glasgow office 
(although they already had a branch there) on favour- 
able terms. The arrangement with the Western 
Bank was concluded in July 1844, the new bank 
getting shares of the former on terms which are stated 
to have yielded them about 7s. 6d. premium on their 
own shares. Thus practically ended the formation of 
new banks in Scotland. It must be admitted, how- 
ever, that, for a population of about 2^ millions, the 
finish was rather brilliant. 

But while so many new banks were entering the 
list, some veteran firms were retiring. The business 
of Sir William Forbes & Company ceased to be a 
private bank in 1838, when an amalgamation was 
effected with the Glasgow Union Bank. In considera- 
tion, however, of the extent of business and high 
reputation of the firm, the old designation continued 
to be used until the Glasgow Union Bank transformed 
itself into the Union Bank of Scotland in 1843. 
The Paisley Union Bank Company also joined the 
Glasgow Union Bank in 1838. On 2nd May 1843 
the Glasgow Union Bank assumed the national 
designation of the Union Bank of Scotland, at the 
same time reducing its nominal capital of 2^ millions 
to 1 million, one half of which was paid up. Soon 
thereafter (August) it absorbed the old-established 
house of Hunters & Co., the Ayr Bank. It made a 
still more important arrangement a few months later, 
whereby a junction with the Glasgow and Ship Bank 
took place as of 1st December. In connection with this 


event, the paid-up capital was raised to 1,000,000. 1 
In November the Western Bank absorbed the Greenock 
Banking Company, paying the partners a large pre- 
mium, an event which is usually considered as the 
extinction of private banking in Scotland. About 
this time also the Greenock Union Bank arranged to 
join with the Clydesdale Bank, an event which appears 
to have taken place at the close of the year. 2 It is 
said there was considerable competition between the 
banks in both Edinburgh and Glasgow to get the 
business. In 1844, in addition to the Edinburgh 
and Glasgow union just referred to, the Paisley 
Commercial Bank and the Dundee Union Bank joined 
the Western Bank (31st March), and the Arbroath 
Banking Company joined the Commercial Bank. 

At this time, moreover, the City of Glasgow Bank 
acquired the Edinburgh establishment of the Eastern 
Bank, which included a local board of directors. There 
is also a statement that they took up " the Commercial 
of Aberdeen;" but, although they did open a branch 
there in 1844, the reference is not easily understood, 
as the Commercial Banking Company of Aberdeen was 
absorbed by the National Bank in 1833. The acquisi- 
tion of the new Glasgow Bank by the Western (already 
referred to) closed this great series of amalgamations. 
But it was not only by the honourable means of 

1 The terms of purchase are stated to have been, that for each 
10,000 share of the latter bank (valued at 18,000), 200 shares of 
the former (market quotation, 90) were given, together with a 
bonus of about 1000 a share in lieu of dividend. 

2 The equation in this case was one Clydesdale 20 share (10 paid) 
at 12 : 10s. for every two Greenock Union, 5 paid, at par ; the new 
holder to pay the difference of 2 : 10s. in cash. 


amalgamation that the roll of banks was being reduced. 
Insolvency, also, was thinning the ranks. In 1842 
there were three failures, but none of them was of 
great magnitude. These were the Leith Banking Com- 
pany (25th April), the Eenfrewshire Banking Company 
(1st April), and Hay & Ogilvie (the Shetland Bank), 
all of whom were sequestrated with considerable loss 
to their creditors. The liabilities of the Leith Bank 
were 123,582, on which dividends of 13s. 4^d. per 
in all were paid. The circulation was small about 
10,000. There were six branches in Scotland, and, 
from 1835-37, one in Carlisle, which was registered as 
an English bank. The Eenfrewshire Bank had debts 
to the amount of 226,545, and paid about 9s. per ; 
but holders of receipts or notes dated prior to 1840 
were paid in full by Mr. Dunlop of Keppoch, a former 
partner. They had five branches. The Shetland 
Bank's debts were about 140,000, and the dividend 
6s. per . A somewhat exceptional action was taken 
by the Eastern Bank in 1844 (November 1), in 
repaying one-third of their capital to the shareholders, 
thus reducing it to 400,000, while at the same 
time they retained 2 a share to clear off bad debts. 
The movement seems to have favourably affected the 
market price of their shares. As curiosity became 
excited, towards 1843, as to the intentions of the 
Government in regard to banking and currency, 
private banks rapidly disappeared by amalgamation 
with their joint-stock rivals, until, in 1844, all had 
disappeared with the doubtful exception of Alexander 
Allan & Co. in Edinburgh. 



THE year 1844 marks a distinct revolution in the 
constitution of banking in the United Kingdom. 
Owing to the pernicious effects of special legislation 
in favour of the Bank of England, the natural 
development of banking in England had been greatly 
hampered. The Bank of England would neither 
themselves supply the necessities of the provinces 
(indeed, they could not have done so to more than 
a small extent), nor would they allow any other 
powerful establishment to minister to them. The 
consequence was that English provincial banking 
was perforce conducted by small private partner- 
ships, whose responsibility was, as far as the public 
was concerned, a matter entirely of faith or conjecture. 
Until 1826 not more than six persons were permitted 
to associate themselves for the purpose of carrying on 
the business of banking. Thus for a period of one 
hundred and thirty-two years from the formation of 
the Bank of England, every encouragement was given 
to weak bankers ; strong banks (with one exception) 
were absolutely prohibited ; and the one powerful 



establishment, for whose special benefit the public 
interests were ignored, was not required, nor did it 
spontaneously endeavour, to supply the vacuum. 

From this state of matters it very naturally 
followed that every financial crisis produced a long 
list of bank failures, and that, periodically, an outcry 
was made about the insecurity of bank notes. That 
the results were not worse than they actually proved, 
must be attributed to the general respectability of the 
persons with whom the public entrusted their financial 
affairs, and not to any beneficial element in banking 
legislation. That was tinkered from time to time, 
each operation encroaching slightly on the monopoly 
of the Bank of England ; but the monopoly itself, the 
real element of weakness, was ever regarded as too 
sacred an institution to be absolutely removed. No 
Government would face such a daring operation, nor 
is it probable that any actually recognised it as the 
proper remedy. In 1826, as we have already seen, 
the nearest approach to this course was taken ; but 
the operation was only half accomplished. 

Sir Kobert Peel's powerful and practical mind 
recognised the necessity of putting banking legis- 
lation on a proper footing. He saw the weaknesses 
of the existing system, and wisely determined to 
remove them. His diagnosis of the case was, how- 
ever, in one essential particular, very deficient, and 
his treatment was hampered by preconceived ideas. 
He certainly did good he succeeded in establishing 
the convertibility of bank notes, or, at least, in 
minimising the danger of their proving inconvertible. 
But he accomplished this by creating a most cumbrous 


and artificial system to supersede a simple but per- 
nicious one, in place of sweeping away all monopolies 
and permitting a healthy and natural development, 
He failed to study exhaustively the history of the 
case. He saw correctly enough the existing condition ; 
he saw that banks were weak, and that notes were 
sometimes not convertible either on demand or at any 
subsequent period. He therefore came to the con- 
clusion that the system of private issues was bad, and 
should be discouraged. He appears entirely to have 
overlooked the vast public benefits derivable from 
such issues; the danger attaching to them was too 
close to his mind's eye to allow him an unbiassed 

All that he really contended for that is, the 
convertibility of the note might have been effectually 
secured without paralysing the provincial issues. He 
might have absolutely abolished issues without security, 
provided the right of issue had been preserved, and 
the public interests would not have been injured ; but 
by drawing a hard and fast line, beyond which issues 
could not go, he prevented bankers from ministering 
to the wants of the public in as great a measure as 
they might have done. He seized the idea that note- 
issuing and banking were essentially distinct ; that 
the former was the prerogative of the State, and that 
the latter should be conducted without connection with 
the former. He refused to recognise the danger of 
entrusting Governments with the power of paper 
issues, and he failed to appreciate the great public 
benefit of the association of issuing with general 
banking. He therefore devised a measure which 


should so far conciliate existing interests, but tend 
to the abolition of private issues, and leave the trade 
of banking absolutely free. As we will see, he 
succeeded in establishing a new monopoly, and in 
restricting the freedom of banking. 

On 7th May 1844, he introduced a bill, which, 
on 19th July following, became the Act 7 and 8 Viet., 
c. 32, "to regulate the issue of bank notes, and for 
giving the Governor and Company of the Bank of 
England certain privileges for a limited period." We 
cannot do better than quote the words of a contem- 
porary writer in describing the Act : " The Bank's 
charter was renewed by the Act 7 and 8 Viet., cap. 32, 
19th July 1844. Its chief points were as follows : 
1. After 31st August 1844, the issue of notes to be 
by the Bank, acting by a committee of directors, under 
the name of ' The Issue Department of the Bank of 
England/ 2. Securities of 14,000,000 to be set 
apart for this, and gold to be held for amount of 
notes beyond this. 3. If any bank of issue ceases 
issuing notes, the Crown in Council may authorise 
the Bank's Issue Department to hold securities for 
two -thirds the amount of that bank's issues, and 
increase the 14,000,000 of notes against securities 
to that extent. [This has since been done to the 
extent of 4,450,000.] 4. Weekly accounts of the 
bank's position to be published in the Gazette. 5. 
Bank to pay 60,000 more than the 120,000 settled 
in 1833 for their privileges, and all profits on notes 
beyond 14,000,000 to accrue to the public. 6. No 
new banks of issue to be permitted after 6th May 
1844. 7. Any bank ceasing to issue notes not to be 

THE ACTS OF 1844 AND 1845 237 

allowed to resume issues. 8. All bauks of issue to be 
allowed to issue an amount equal to their average 
circulation for twelve weeks preceding 27th April 
1844. 9. Bank of England to be allowed to com- 
pound with private banks of issue to withdraw their 
notes, and get a commission not exceeding one per 
cent, till 1st August 1856. 10. Privileges of the 
Bank to continue till twelve months' notice after 
August 1855." 1 

Of these provisions, the only one directly affecting 
banking in Scotland is the 6th. By it the formation 
of new banks of issue, which had hitherto been freely 
exercised, was prohibited. There were nineteen banks 
of issue in Scotland on 6th May 1844. Their total 
average circulation was ascertained to be 3,087,209, 
which amount consequently became their authorised 
issue of bank notes. Since then, by the failure of 
two banks and the absorption of seven banks, the 
number of banks of issue has been reduced to ten, 
and the authorised issues to 2,676,350. The 
present average circulation of all the banks is about 

Further legislation was deferred until next year, 
when the cases of Ireland and Scotland were dealt with 
specially. The Irish Act, 8 and 9 Viet., c. 37, 21st 
July 1845, rectified one great evil which had resulted 
from the establishment of the Bank of Ireland on 
principles of special privilege, as in the case of the 
Bank of England. Hitherto no partnership or com- 
pany consisting of more than six persons, other than 
the Bank of Ireland, had been permitted to conduct 
1 Boase, second edition, p. 428. 


banking business in Dublin, or within fifty miles of it. 
This prohibition was abolished by the 1st section of 
the Act, from and after 6th December ensuing. Pro- 
vision was made for the repayment of sums advanced 
by the Bank of Ireland for the public service, and for 
the dissolution of the bank if determined on. Bank 
of England notes were not to be a legal tender in 
Ireland ; banks might surrender their right of issue in 
favour of the Bank of Ireland ; and notes for less than 
20s. were prohibited. With the exception of a special 
provision referring to an agreement between the Bank 
of Ireland and the Tipperary Joint-Stock Bank (which 
had been established by John Sadlier in 1839, and 
failed in 1856, with great loss to creditors through 
the fraud and forgery of its founder), under which the 
latter only issued notes of the former, the other enact- 
ments of the Irish Act are similar to those of the 
Scotch Act, to which we must now refer. 

On the 21st July 1845 there received the Koyal 
assent " an Act to regulate the Issue of Bank Notes in 
Scotland," 8 and 9 Viet., c. 38. This is the Act under 
which the note circulation of Scotland has since been 
conducted. As no special privileges existed among 
the Scottish banks (the matter of incorporation was 
entirely within the power of the Crown), legislation 
was comparatively simple. Sir Eobert Peel was con- 
vinced that he could not extirpate either the small or 
the large notes, as the people strongly believed (in 
what he doubtless considered their ignorance) that 
their bank-note system had been an efficient agent in 
advancing the prosperity of the country. That the 
public of Scotland were correct in their view of this 


matter, will, it may be hoped, be evident from the 
former chapters of this history. At the same time it 
may be conceded in favour of Sir Kobert Peel's 
theories, that the usefulness of the notes was not in 
1845 what it had been in former times. The paper 
currency, formerly indispensable to the commerce of a 
country which was too poor to indulge in the precious 
metals, was no longer absolutely necessary under the 
happier circumstances to which the country had 
attained ; but the people liked the notes, and con- 
tinued to regard their existence as of as much necessity 
as formerly. 

It does not appear from contemporary writings that 
the true value of bank-note issues in modern times 
was actually appreciated. The defenders of the status 
quo always drew their arguments from past experience, 
which, as we have seen, was every year losing, to some 
extent, its applicability. The great use of bank notes 
in relation to banking at the present time, from a 
public point of view, is their function of enabling 
banks to extend banking facilities into all parts of a 
country thinly-populated and poor districts as well 
as dense centres and wealthy provinces. The saving 
in wear and tear of coin is another important benefit. 
Not only is there much less loss in this way, but such 
as there is practically falls on bankers. 

Sir Robert Peel, however, was determined to re- 
strict to some extent the rights of issue in Scotland, 
although he was forced to confer freer powers of action 
than he had accorded to English bankers. The 1st 
section of the Act re-enacts the prohibition of new 
issuing banks contained in the English Act, and made 


arrangements for ascertaining the average circulation 
of each existing bank, so that the amount of their 
authorised issues might be fixed. Sections 2, 3, and 

4 provided that uniting banks might retain the full 
powers of issue enjoyed by them separately. Section 

5 prohibits notes for fractional parts of 1. This 
was no new provision, as it had existed since 1765. 
Section 6 permits banks to issue to the extent of 
their authorised issues, plus the average amount of 
gold and silver coin held at their head offices during 
every successive period of four weeks. Section 7 
provides for the rendering to the Commissioners of 
Stamps and Taxes of weekly accounts relating to 
note-issues. Section 8 defines bank notes in circula- 
tion as those which had left bank offices and had not 
been returned thereto. Section 9 enjoins Commissioners 
of Stamps and Taxes to publish monthly returns of 
the state of the bank issues. Section 10 regulates 
the mode of ascertaining the average amount of notes 
in circulation. Section 11 enacts that silver coin 
shall only count as against the note -issues to the 
extent of one-fourth of the gold so held. Section 1 2 
empowers the commissioners to inspect bankers' books 
for the purpose of ascertaining the accuracy of returns. 
This power has never been exercised. Section 13 
orders all bankers (except the three limited banks) to 
render a yearly return of the names of all partners. 
Section 14 prescribes that the penalty on excess of 
issues, beyond the authorised circulation and the 
metallic reserve, shall be forfeiture of the excess. 
Section 15 provides that Bank of England notes shall 
not be legal tender in Scotland. This was merely a 


specific enactment of the existing law. Section 16 
makes notes under 20s. not negotiable. Section 1*7 
prescribes the form of notes for amounts from 20s. to 
5. Sections 18 and 19 prescribe penalties for the 
non-observance of provisions of the Act. Section 20 
exempts cheques from inclusion under the provisions 
of this Act. Section 21 refers to the mode of 
recovering penalties; and Section 22 (the last) inter- 
prets the words used in the Act. 

Although this Act does not square in all respects 
with economic principles, there can be little doubt 
that its main provisions have proved salutary to the 
public interest. The needless formation of new banks 
at once ceased, much to the public benefit. Now that 
the note -issues exceed the authorised circulation, a 
bullion reserve on the part of every bank is secured. 
No doubt a well-regulated bank would hold such a 
reserve without being forced to do so ; but then all 
banks are not well regulated. The provisions in 
favour of amalgamating banks have tended to the 
elimination of small and weak banks. A system of 
large and wide -spread banks was encouraged. All 
these benefits, however, are more incidental to the 
operation of the Act than actually designed by it. 
The convertibility of the notes, and the prevention of 
over-issues, were the great objects of Sir Eobert Peel's 
measure. But it did not secure, although it perhaps 
strengthened, the convertibility of the notes ; and 
over -issues were already impossible under the long- 
established system of exchanges subsisting among the 

Some positive disadvantages, moreover, attach to 



the Act. A monopoly of banking, although not 
directly established, has been a practical outcome of 
its provisions, for it is believed to be impossible to 
successfully conduct a non-issuing bank in competition 
with the banks of issue. The relative proportions of 
the authorised issues also, although accurate at the 
time they were fixed, are now out of keeping with 
the actual circulations of the various banks. But, 
whether the Act has fully answered the real intentions 
of its framer or not, it has not interfered with the 
public interest in retaining a wide-spread system of 
banking, and it has tended to the solidification of the 
banking institutions of the country. Had England 
been blessed with as good an Act, it would have been 
spared many grievous banking questions, which have 
disturbed the equanimity of economists and statesmen. 




IN last chapter an account was given of the revolution 
in banking legislation effected by the three Acts passed 
under the auspices of Sir Robert Peel, for the three 
kingdoms respectively. To complete the survey of 
banking in Scotland to the close of the year 1845, 
only a few further particulars require to be specified. 
In 1844 the National Bank of Scotland increased its 
paid-up capital from 500,000 to 1,000,000. The 
new shares were allotted to the existing proprietors. 
As it does not appear that any premium was required, 
and as the market price was about 50 per cent 
premium, this would constitute a large bonus. The 
shares were at the same time converted into stock. 
The Commercial Bank of Scotland absorbed, in the 
middle of the same year, the Arbroath Banking 
Company, a small joint-stock bank, which seems, like 
Dogberry, to have had losses, of which, however, it 
was not so proud as to resist the temptation of security 
under the cegis of the brilliant metropolitan establish- 
ment which had so rapidly and surely won success in 
the banking field. 



Early in 1845 there seems to have been an 
attempt to form a new bank in Glasgow, which, how- 
ever, was unsuccessful. But that it assumed concrete 
form is indicated by a remark in a contemporary 
stockbroker's circular " Clydesdale is also better, in 
consequence of an arrangement they have entered into 
with a second establishment recently formed under 
the title of the ' Glasgow ' Bank, which has not 
succeeded." 1 The Western Bank increased their 
capital at this time, by 300,000, making it 
1,300,000, which enabled them to add 120,000 
to the reserve fund. They also bought the business 
of the Ayrshire Banking Company, giving them a 
premium of 60,000. The Ayrshire had existed for 
seventeen years, and had nine well-placed branches. 
In this same year some excitement was occasioned by 
the removal from office of Mr. John Thomson, cashier 
of the Royal Bank of Scotland. This unusual incident 
was occasioned by Mr. Thomson's refusal to retire 
gracefully by resignation, when the interests of the 
establishment seemed to the directors to require 
a change of management. Mr. Thomson angrily 
addressed the proprietors on the subject, but the 
nature of his defence only served to justify the action 
of the board. He subsequently became manager of 
the Edinburgh and Glasgow Bank, and in that 
capacity he did not disprove the wisdom of the Eoyal 
Bank board in relieving him of his duties. 

During November 1845, a sharp stock exchange 
panic occurred, as the result of long-continued and 

1 R. Allan, 31st January 1845. This was the third company of 
that name. 


excessive speculation in railway scrip. The effects 
were very acute while it lasted, and heavy losses were 
sustained by private persons; but the banks only 
benefited by an increased demand for advances and 
improved interest rates. The market quotations of 
their stocks, however, were materially lowered by 
forced sales on the part of embarrassed holders. 

It will be proper to refer here to a species of com- 
pany which, about this time, was the subject of a 
speculative mania, and whose operations were to some 
extent allied to banking. Indeed, some of these com- 
panies actually styled themselves "banks," although 
most of them were content with the less pretentious 
and more appropriately descriptive term of " exchange 
companies." The occasion of the formation of these 
companies was the great development of all classes of 
joint-stock associations, and more particularly of rail- 
way companies, to which reference has already been 
made. This extensive joint-stock enterprise was, to 
a large extent, mere speculation, and applicants for 
shares had very often no intention of retaining their 
allotments longer than was necessary to secure the 
premium to which public credulity and the wiles of 
promoters usually raised the shares soon after the 
floating of the company. In order to carry on these 
transactions to the best advantage, speculators sought 
for advances on the security of their stocks. 

Banks looked on such business as beyond the 
limits of their legitimate profit ; but the demand for 
accommodation produced the necessary means for 
supply. Exchange companies sprang into existence, 
and achieved a rapid and brilliant success, beyond the 


expectations of their projectors. It was in Glasgow 
that this industry was originated, and where, also, it 
was most extensively carried on. The first of these 
companies formed in Scotland appears to have been 
the Glasgow Commercial Exchange Company, which 
commenced business in May 1845. The capital was 
1,000,000, of which half was paid up. Before the 
close of that year four similar companies were formed 
in Glasgow, and other two followed soon thereafter. 
In Edinburgh only one exchange company seems to 
have been established, although another was projected 
towards the close of 1846 ; but Aberdeen and Dundee 
helped to swell the list. The Edinburgh establish- 
ment was called the Exchange Bank of Scotland, 1 and 
was under the management of Mr. Duncan M'Laren, 
afterwards well and honourably known in connection 
with the affairs of the city of Edinburgh. It obtained 
a royal charter in December 1846. 

The extent of the operations of these companies 
may be estimated from the fact that they usually had 
a full staff of officials, such as manager, secretary, 
cashier, and accountant, with a staff of clerks to 
correspond. Indeed, they aimed at appearing as 
thoroughly-equipped banking offices. As, during the 
height of the speculative mania which followed the 
brilliant harvests and general prosperity of the years 
1842-45, speculators paid from 5^- per cent to 8 per 
cent for advances, while deposit money could be 

1 Paid-up capital 350,000, dividend 6 per cent, share 100, 50 
paid, price 38 : 15s. R. Allan, 28th April 1848. In the official 
stock list of 3rd August 1846, the shares are stated as 10, 5 paid, 
price 5 : 10s. 


obtained with a margin of 2^ per cent profit, the 
operations of these companies were attended with very 
great success. But, like Sancho Panza's enjoyment of 
power and luxury, this bliss was of short duration. 
The approach of the severe crisis of the autumn and 
winter of 1847-48 curtailed their business, and during 
the crisis they suffered heavy losses a contingency 
which they seem never to have contemplated. Public 
confidence in them completely broke down, and in 
rapid succession they collapsed. Three of them dis- 
appeared in 1848, after a brief career of three years' 
duration. The Edinburgh company survived till 
1852, one of the Glasgow companies till 1853, and 
another maintained till recently a sort of galvanic 
existence, and a place in the Banking Almanac, 
although even its name is but little known. This 
is the North British Bank. It was established at 
Glasgow in August 1845, and in 1872 its paid-up 
capital was stated to be 120,000, held by 155 
partners, on which it paid a dividend of 1 per cent. 1 
In recent years, however, it seems to have refrained 
from paying even that small dividend, and it has, at 
the same time, modestly withheld particulars as to its 
financial position. Latterly it conducted a bonded 
store business, but was wound up some years ago, the 
business being taken over by the Warroch Street 
Stores, Ltd. 

The theory on which these companies were formed 
was by no means an unsound one. Had they been 
managed with sufficient caution, and had time been 

1 1848 Paid-up capital 250,000, no dividend, share 50, 10 
paid, price 1 : 17s. 3rd August 1846 price 10. 


given them to secure consolidation, they might have 
weathered the storms which inevitably disturb the 
financial world in well-marked cycles. But they were 
formed at a time when the securities in which they 
dealt were at an inflated price, and they acted as if 
the vast extension of financial activity which brought 
them into being would prove perennial. They were 
guilty, moreover, of grave errors in business manage- 
ment in regard to the securities they accepted. They 
also indulged in reckless competition with each other, 
and, strange to say, involved themselves in each other's 
liabilities, by taking over exchange companies' shares 
as security for advances. The soundness of the busi- 
ness, when properly conducted, is best evidenced by 
the fact that, when exchange companies had paid the 
forfeit for their bad management, banks adopted the 
business of advancing on stocks as one of their regular 
departments, and have since conducted it with much 
profit. In a pamphlet 1 written in defence of the 
companies when they were beginning to get into 
difficulties, a complaint was made that the banks 
attempted to suppress the companies by the formation 
of an association to deal with this business in their 
own interest, under the designation of the British 
Trust Company. 

The interval of about ten years and seven months 
which elapsed from the crisis of 1837 to that which 
we must now refer to, shows the usual rotation of 

1 Banks and Exchange Companies. George Kinnear. Glasgow. 
1847. The author was manager of the Glasgow Commercial Ex- 
change Company. He also issued A History of the Rise of Exchange 
Companies in Scotland, and a Defence of their Proper Business. 

THE CRISIS OF 1847 249 

experiences in financial and commercial affairs. The 
years 1838-42 are marked in the main by quiescence. 
In exception to this, however, it must be noted that 
the last great burst of the bank-projecting mania in 
Scotland took place in 1838. But this would seem 
to have been more the completion of projects con- 
ceived previous to the crisis, and found to be feasible 
in Scotland (where most of the crises from 1793 to 
1857 fell with extraordinarily small effect, so far as 
banking is concerned), than a new outburst of specula- 
tion. The harvests of 1842-3-4 were exceptionally 
good, and were accompanied with great general pros- 
perity. With this the speculative fever broke out 
with great intensity. The special form it assumed 
was the formation of railway lines. No number of 
railway projects seemed too many to the insatiable 
public. Every prospectus that appeared was greedily 
seized on, and shares applied for and gambled with 
both before and after allotment. Money was borrowed 
on shares obtained, in order to apply for the next 
venture. The game reached its maximum in 1846, 
and by the fourth quarter of the next year it was all 

In 1847 there was a marked diminution in the 
railway mania, although the commitments were still 
on a sufficiently large scale. Speculation was giving 
way in 1846. This was the second year of the great 
Irish potato famine, and the famine fever had com- 
menced its ravages. Distress in England, too, was 
manifest. Next year matters grew worse. Money 
was scarce and dear. Bankruptcies were numerous. 
The Bank of England minimum discount rate rose 


steadily from 3 per cent to 8 per cent during the 
months from January to October. The change was 
so impressive that a writer in 1847 asserts, with 
pardonable exaggeration, that there was a sudden and 
almost total cessation of commerce, and that mercan- 
tile cities appeared as if men were liquidating debts, 
winding up concerns, and retiring. 1 From the 18th 
to the 25th of October a state of acute crisis existed. 
Several joint-stock banks and a number of private 
banks failed in various parts of England. Assistance 
could hardly be got by men possessed of the best 
securities on any terms. On the 25th of October the 
crisis suddenly ceased. Accommodation could be had 
with ease, and was comparatively little asked for. 

What was the cause of this extraordinary change ? 
How were men's minds suddenly placed at rest, and 
their strained financial relationships instantaneously 
relaxed ? The patent perpetual self-acting and gener- 
ally beneficent Bank Charter Act, by which the 
powers of the Bank of England were restrained for 
the good of the community, was suspended by an 
arbitrary and illegal act on the part of the Govern- 
ment. As soon as it was known that the Bank of 
England would be allowed to set aside the provisions 
of the Act of 1844, which prohibited the issue of 
notes by the issue department beyond a fixed amount 
against securities, plus the amount of bullion held by 
the department, the alarm subsided. Holders of 
securities, who before were panic-stricken to find that 
they were cut off from all assistance, were now perfectly 

1 The Crisis and the Currency. John G. Kinnear. Edinburgh. 


satisfied with the knowledge that, should they require 
accommodation, they could easily get it, and in most 
cases did not even seek it. Thus, three years after 
Sir Eobert Peel had so elaborately adjusted the basis 
of the financial system of the country, it came to a 
dead-lock. The restriction imposed on the Bank of 
England acted like the sudden jamming of an engine's 
works intense friction and heat were produced. 
When the restriction was removed, the engine worked 
to the utmost satisfaction. 

The effect of this crisis on the banking business of 
Scotland was not specially noticeable ; but one point 
calls for attention. The Western Bank of Scotland, to 
whose affairs we have already referred, again got into 
difficulties. It does not appear, however, that the 
other Scottish banks were aware of this at the time. 
Pursuing its habitual course, despite remonstrances on 
the part of the other banks, and reluctantly -granted 
promises of amendment, the Western Bank had been 
lending out all its funds, re-discounting its bills, and 
neglecting to provide a reserve of convertible securities. 
In order to meet its engagements in London, it 
applied to the Bank of England, and got the loan of 
300,000. This it repaid soon afterwards, owing, 
doubtless, to its growing popularity in Scotland re- 
plenishing its coffers. At the same time, the past-due 
bills account was running up to an alarming extent. 
Nothing could avert the fate in store for this establish- 
ment, its directors and manager being the complacent 
subjects of an infatuation that is almost incredible. 
For it must be remembered that, up to the time of 
which we speak, it would have been an easy matter 


for the bank to reverse the policy which precept and 
experience had both condemned, and at the same time 
to have permanently established one of the best bank- 
ing businesses in Scotland. The capital was nearly, if 
not entirely, intact. The bank enjoyed the utmost 
credit with the public, if not with the other banks. 
Losses might have been gradually made up from the 
large profits earned, and before the next crisis came, 
the bank might have been in a thoroughly strong and 
healthy state. But all the experience of bankers in 
the past, all the reason and wisdom of those of the 
present, were contemptuously thrown aside by men 
who were mere tyros in the business. Carried away 
by the brilliance of the success they had achieved by 
their active and daring policy, they did not pause to 
secure the conquest they had made. When they had 
again to encounter trial, they found it ruin 




IN its political aspects the period from 1847 to 1857 
of which we must now treat was marked by 
stirring events. During the first six years Britain 
was at peace with all the world ; but the state of the 
nation at home was, for part of that time, very 
unfavourable. The country was suffering from the 
effects of the great crisis of 1847-48; cholera was 
manifesting itself again ; the French Eevolution of 
1848 disturbed men's minds ; conflicts between labour 
and capital were very bitter ; and agitation for parlia- 
mentary and financial reform added to the disturbed 
state of the public mind. The late Dr. Norman 
Macleod described the year 1848 as a time of " famine, 
pestilence, riots, and rebellion." By 1850 matters 
appear to have improved, for the people seem to have 
been so far freed from material cares as to be able to 
join heartily in national excitement over the aggression 
of the Church of Rome in re-establishing the Papal 
hierarchy in England. 

The circumstances of the nation continued to 



improve. Unpopular taxes were successfully con- 
tended against ; international communication was 
improved by the laying of ocean telegraph cables ; and 
although in 1853 there were strikes and riots in con- 
nection with a general agitation for an advance of 
wages, these seem to have been the outcome of the 
increased volume and profitableness of trade. In 
1854 the usury laws were abrogated. In the same 
year the peace which had hitherto blessed the nation 
was broken by the declaration (March 28) of war with 
Eussia. The Crimean war, undertaken by Britain and 
France on behalf of Turkey, lasted more than a year, 
and is estimated to have cost this country between 
80,000,000 and 90,000,000, and an immense 
number of lives. Hardly had it been successfully 
concluded when hostilities with China broke out in 
1856. Next year, the last of the period under 
review, was burdened with the horrible Indian Mutiny 
(May to December). The close of the same year 
witnessed a great commercial and financial convulsion. 

In the preceding period the ruling feature of financial 
affairs was railway enterprise. The period from 1847 
to 1 8 5 7 was, on the other hand, marked specially by 
general commercial activity, which seemed to pervade 
all nations. Kailway commitments, although steadily 
engaged in, were not on anything approaching their 
former scale ; and the formation of joint-stock com- 
panies seems rather to have followed in the wake of 
advancing commercial prosperity than to have been 
the special subject of speculative attention, as was the 
case from 1825 to 1836. 

As regards banking in Scotland, the period up to 


the crisis with which it closed is almost destitute of 
important features, other than those evidencing a quiet 
but rapid development of the banking system within 
the limits laid down by the Legislature. In 1849 
the British Linen Company obtained a new charter 
from the Crown, authorising them to increase their 
capital, which stood at 500,000, by 1,000,000. 
Next year this power was availed of to the extent of 
500,000, making their total capital 1,000,000. 
In July 1849 the old-established Banking Company 
in Aberdeen was merged in the Union Bank of Scotland ; 
but it continued to retain its local designation for four 
or five years. The terms of purchase were that one 
Union 100 share with 50 paid, valued at 81 : 15s., 
was given for 36^ of the Aberdeen shares with 5 
paid up, or a discount of 55 per cent. During the 
earlier years of its existence this bank experienced quite 
extraordinary success ; but, seemingly its star had set. 
The last surviving private banking firm in Edinburgh, 
Messrs. Alex. Allan & Co., disappeared about this time. 
They had, it may be presumed, long ceased to do any 
active business as bankers, but the designation was kept 
up to the last. Their business as insurance agents 
and stockbrokers continued under another firm. A 
more important concern, the Perth Banking Company, 
was, on 1st August 1857, amalgamated with the Union 
Bank of Scotland. Although the roll of bankers was 
practically closed by the Act of 1844, the banking 
system continued to develop. During the first half of 
the period the increase in bank offices was under 30 ; 
but in the second half no fewer than 240 new branches 
were opened. The Eoyal Bank commenced in 1855 


an active extension of their branch system ; but the 
banks which figured most prominently in this respect 
were the Western Bank and the City of Glasgow 

The whole course of the year 185*7 was one of 
tension in commercial and financial circles. It began 
with the Bank of England minimum discount rate at 
6 per cent, which rose in April to 6^ per cent. The 
rate subsequently dropped to 5^ per cent in July ; 
but the average rate for the first half of the year was 
nearly 6^ per cent, the average for the whole year 
being 6:13:3. The foreign trade of the country 
had been extended during the immediately preceding 
years in a formerly-unknown ratio. The enormous 
dimensions which it had reached by 1857 were quite 
beyond the legitimate bounds of the world's require- 
ments. Thus naturally arose a reaction which produced 
the crisis of the autumn of this year. Other causes, 
such as the great development of banking facilities, 
and some loose methods on the part of merchants giving 
credit to foreign correspondents, have also been ascribed 
as contributing causes. But these can only be con- 
sidered as subsidiary, for they were merely the natural 
accompaniment of the inflated sanguineness with which 
traders were imbued. The banks, as a whole, cannot 
be burdened with much blame for the troubles which 
arose; for it is evident from the final outcome that 
the great bulk of their advances had been well secured. 
Some of them, doubtless, did err to a culpable extent, 
and paid the forfeit with their existence ; but for the 
others, it was not to be expected that they should re- 
frain from transacting sound business, as judged from 


their own standpoint, merely because they thought that 
trade was being overdone. That was the merchants' 
business. It is thus evident that the real cause of 
the crisis of 1857 was over- trading by the merchants 
of the world. It might, perhaps, be still further limited 
by specifying the merchants of Britain and the United 

The first serious trouble came from the latter 
quarter. Bankruptcies in America became numerous 
early in the year, and increased as it progressed. The 
banks there became embarrassed, and in September 
adopted a general suspension of specie payments. 
This course seems to have worked satisfactorily, with- 
out putting a stop to business. But, although the 
Americans could get on pretty well in that way, the 
consequences on this side of the Atlantic were very 
different. Failure of remittances from the United 
States forced British mercantile houses to stop pay- 
ment. Undoubtedly solvent firms were obliged, for 
the time being, to succumb ; and, of course, their 
weaker brethren were at once crushed hopelessly. 
The Bank of England discount rate, which had fallen 
to 5j per cent on 16th July, rose on 8th October to 
6 per cent. Four days later it was advanced to 7 per 
cent, and next week to 8 per cent. The banking 
reserve had been steadily and largely falling, and on 
24th October reached the low point of 3,485,840. 
On 27th October the Borough Bank of Liverpool 
failed, after a hopeless appeal to the Bank of England 
for assistance. The Northumberland and Durham 
District Bank also applied for assistance; but, after 
examination, aid was refused, and it had to succumb. 



Two large bill-broking houses in London, and a long list 
of minor houses, also failed. On 5th November the 
bank rate was raised to 9 per cent, and excitement 
reached a high pitch. The banking reserve had fallen 
to 2,155,315. 

It was seen that the bank's ability to render 
assistance was, under the fetters of the Act of 1844, 
rapidly falling to zero. The directors made every 
effort in their power, by the forced sale of consols, to 
replenish their reserve ; but the drain was beyond 
their power to supply. On the 9th November the 
Western Bank of Scotland suspended payment, and 
the panic became excessive. On the llth the banking 
reserve was only 1,462,000. Day after day the 
bank was forcing consols on the market to replenish 
the reserve. The applications for assistance were far 
beyond its power to meet. On the 12th affairs looked 
hopelessly dark. Suddenly there was a ray of light. 
It was whispered that the Government were about to 
sanction the breaking of the law. On the 13th the 
panic vanished, as by the virtue of a magic wand. 
The Lords of the Treasury wrote to the directors of 
the bank, authorising them to disregard the enactment 
of Parliament restricting their power to issue notes. 
As in 1847, so now; when people knew that there 
was no limit to the note-issue of the Bank of England, 
and that therefore they could get assistance when 
they required, they no longer sought it. 

It is probable that this crisis would have been 
comparatively slight in Scotland, had it not been for 
the rottenness of the Western Bank of Scotland. As 
it was, the crisis was intense in Glasgow and Edin- 


burgh, and disastrously affected the whole country. 
What gave peculiar sharpness to the panic was the 
unexpectedness of its immediate cause. The Scottish 
public have always displayed an amount of confidence 
in the banking institutions of their country, which at 
first sight seems somewhat out of keeping with their 
hereditary canniness. In point of fact, however, their 
reliance on the soundness of the banks was by no 
means unnatural Experience had shown that the 
public loss through bank failures in Scotland was 
quite exceptional, and never serious. The total loss 
sustained up to the present time is quite insignificant. 
Thus a habit of unsuspicious confidence had grown up 
which could not easily be disturbed. Had it not 
been for this, the Western Bank would not have en- 
joyed the great popularity which distinguished it from 
all its rivals. It was supposed to embody the solidity 
of the old banks with the broad-mindedness of modern 
principles. It is not to be wondered at, that the 
sudden shock of its failure should have, for the moment, 
driven the public to an opposite extreme of distrust. 
The distrust, however, was of very short duration ; for 
it soon became evident that, whoever might suffer, the 
creditors would not. It was noticeable, also, notwith- 
standing the great stress laid by statesmen and econo- 
mists on the dangers of private note-issues, that the 
note-issues of the Scotch banks did not contribute in 
the slightest degree to the causes of the crisis, and 
were not particularly the subjects of the panic which 

The Western Bank of Scotland had a fully paid-up 
capital of 1,500,000, which was one half larger than 


the capital of any other bank in Scotland, except the 
Koyal Bank. The shares were of 50 each, and sold 
in 1841 at 71, while shortly before the stoppage 
they stood at 84 : 5s. The bank had 101 branches, 
which was more than any of the other banks had 
established. Its note circulation, although declining, 
was among the highest, and testifies to the great 
extent of its business. Its deposits, although reduced 
by rising distrust in Glasgow, amounted at the time 
of failure to 5,306,569 (a very large sum for those 
days), of which 4,402,973 was held by the branches. 
It would seem that of the total deposits less than 
one-tenth consisted of sums under 50. 

As we have seen from time to time, the system of 
management of the Western Bank was not only 
directly opposed, in some essential points, to the prin- 
ciples adopted by the other banks, but had actually 
led it into grave embarrassment on more than one 
occasion. Assistance had been given to it on promises 
of amendment, but no sooner was the immediate 
danger past than the old system was resumed. The 
great point which not only the Edinburgh banks, but 
also the Western Bank's correspondents in London, 
had urged on the bank's attention, was the danger of 
dispensing with a large reserve of high -class con- 
vertible securities. To a certain extent the advice, 
backed as it was by intimation that continued dis- 
regard of it would lead to exclusion from the bank- 
ing concert, was acted on. But it is evident that 
the adoption of the principle was little more than 
nominal. A still more serious evil was meanwhile 
undermining the foundations of the bank. Neglect 


to provide proper reserves endangered the bank 
as a going concern ; but the reckless manner in 
which the directors were lending their money on a 
few large risks was courting ruin. One of their 
wildest schemes was establishing a discount agency 
in New York, which eventually occasioned a loss of 

Owing to their close connection with New York 
business, the troubles in America, which reached a 
height in September, occasioned great embarrassment 
to the Western Bank. On the 15th October, Mr. 
John Taylor, the manager, resigned office, and was 
succeeded by Mr. J. S. Fleming, who was then law 
secretary of the bank, and in 1871 became cashier 
and general manager of the Eoyal Bank of Scotland. 
For a week negotiations were conducted with the 
Edinburgh banks, with the object of obtaining 
assistance; but this was refused, pending the result 
of application to the Bank of England. That being 
unsuccessful, the Edinburgh banks at length advanced 
510,000 in consols. This was on 29th October. 
The crisis in London increased, and the want of 
confidence in the "Western Bank became serious. 
Further aid was asked from the Edinburgh banks, 
but was refused. The failure of Dennistoun & Co., 
of London and Glasgow, with liabilities of over 
2,000,000, on 7th November, brought the crisis 
in Scotland to a focus. (The firm were only 
temporarily embarrassed by want of remittances from 
America.) The note exchanges continuing to run 
heavily against the Western Bank, the directors 
intimated to the Bank of Scotland their probable 


inability to meet the settlement of 9th inst. At 
two o'clock on that day the doors of the bank 
were shut, and the branches were directed not to 
re-open next morning. The total liabilities of the 
bank at the stoppage were 8,911,932, exclusive 
of capital and rest, amounting together to 1,726,7.77. 

After some attempts at reconstruction, the bank 
went into voluntary liquidation. Two calls, amount- 
ing together to 125 per share, or 250 per cent, 
on the capital, were made on the contributories. 
These produced a total sum of over 2,000,000, of 
which, however, more than 800,000 was subsequently 
returned. The net loss to shareholders, including 
capital at par and reserve fund, was 2,816,354. 

On the failure of the Western Bank, the other 
banks hesitated to accept their notes. This increased 
the public panic, and a run on the banks took place. 
On the llth, however, the banks resolved to take 
Western notes in course of business, and influential 
statements of confidence in the ability of the Western 
Bank to meet all its engagements having been made, 
the excitement rapidly subsided. On the 10th 
November, the City of Glasgow Bank suspended 
payment, with liabilities to the extent of 5,107,142. 
It re-opened on the 14th December. 

The only minor point claiming notice here is a 
provision of the Stamp Act of 1853 (Clause 7) by 
which the Treasury were authorised to compound 
with all the Scottish banks, both for the stamp 
duties on their notes, and for those on their bills, 
under such security and forms as the Treasury might 
require. This arrangement was carried out on the 


4th November, the rate being fixed at 8s. 4d. per 
cent. A calculation made by the Dundee Bank 
showed that, during twenty- four years, they had 
actually paid an average of about 6s. 8d. per cent 
per annum on their note circulation. 



OF 1866 

THE political experience of Great Britain from 1857 
to 1866 was one mainly of peace ; but in other 
quarters of the globe several severe wars occurred 
which sometimes endangered its neutrality. Indeed, 
throughout this period it may be said that Britain's 
condition was rather one of armed neutrality than 
of perfect concord with the other powers. In 1859 
France and Sardinia conducted a successful campaign 
against Austria, which was the commencement of 
the formation of the kingdom of Italy. In the 
middle of the same year Britain went to war with 
China, one incident of which was the repulse of our 
fleet off the Peiho. This war was continued almost 
throughout the succeeding year, during which Garibaldi 
commenced his career as the great liberator of Italy, 
at Marsala, in Sicily. The most important event in 
the world's history for the year 1860 was, however, 
the secession, on 19th December, of the State of South 
Carolina from the great American Union an action 
which was speedily followed by the secession of the 



other Southern States of the Union. Early in 1861 
the seceding States numbered eleven, united as an 
independent political organisation, under the designa- 
tion of the Confederated States of America. The civil 
war which ensued assumed enormous proportions : it 
was protracted and bloody, involving vast expenditure ; 
and its direct and indirect effects on the trade and 
financial conditions of the world were very great. 
At one time, moreover, Britain was on the eve of 
a rupture with the Federal States, owing to the 
violation (8th November 1861) of the neutrality 
of one of her mail steamers by the American war- 
ship San Jacinto, an incident popularly known as 
the Trent affair two commissioners from the Con- 
federated States being forcibly taken from the British 
vessel while on their voyage from Havanah to 
Southampton. Before the close of the year, however, 
reparation having been made by the Federal Govern- 
ment, all danger of war had passed away. A small 
war with the natives of New Zealand broke out at 
the close of 1863, and another with Japan in the 
succeeding year, in which the French, Dutch, and 
United States fleets were allied with the British. 
In January 1864 Britain was nearly involved in 
war with Prussia and Austria, in defence of Denmark ; 
but, at some sacrifice to her prestige, she refrained 
from an interference which must have been attended 
with very serious results. The close of the American 
civil war was signalised by the assassination (April 
14) of President Lincoln. Prussia and Italy were at 
war with Austria in 1866, but in that conflict Britain 
had no direct interest. 


Meanwhile the arts of peace had been progressing 
satisfactorily. No great inventions or discoveries 
revolutionised the conditions of trade or society, but 
existing facilities were developed and availed of to a 
great extent. An important step in ocean navigation 
was taken in the building of the Great Eastern steam- 
ship, which was launched on the Thames on 31st 
January 1858. Unfortunately this great project was 
beyond the knowledge of its designers and the require- 
ments of the time; and it proved an almost total 
financial failure. The Great Eastern was practically 
useless until the comparatively small value to which 
it fell permitted it, in after years, to be successfully 
employed in the laying of ocean telegraph cables. 
This department of business was developed very 
widely during the period of which we are treating. 
On 5th August 1858 the first Atlantic cable was 
successfully laid, and congratulatory messages were 
interchanged between Britain and the United States. 
This was speedily followed, however, by the grievous 
disappointment of a total cessation of communication, 
through some flaw which the electricians of that time 
were unable to deal with. In other quarters of the 
world telegraph cables were laid with more success. 

From an economic point of view, the period 
extending from 1857 to 1866 displays the usual 
features of depression, activity, speculation, and 
collapse ; but, probably owing to the greater com- 
plications consequent on advancing civilisation, and 
to the disturbing influence of the striking political 
events to which we have referred, these characteristic 
transitions are not so clearly marked as in some 


previous periods. One noticeable point is that the 
period of depression following the crisis of 1857 was 
of unusually short duration. Within two years a 
marked advance of prosperity had occurred ; and the 
Times was able to record that, with the exception of the 
shipping interest, " every branch of industry is flourish- 
ing as abundantly as at any former period, and the 
England of 1860 is richer, stronger, and better con- 
tented than the wealthy and prosperous England 
which in 1850 commanded the respect and envy of 
the world." Increasing commercial activity reached 
the phase of speculation in 1862 and 1863, when 
bubble companies principally banking and trading 
became numerous, and foreign loans formed the 
subject of a monetary mania. 

In the former year, however, a serious counter- 
acting influence came into play. This was the 
so-called " cotton famine," consequent on the blockad- 
ing of the ports of the Confederate States of America. 
By this event the cotton industry of Lancashire was 
paralysed, and large numbers of operatives were thrown 
out of employment. The nation came nobly forward 
to avert the danger of starvation which threatened 
the working classes of the district; and, although 
great loss occurred by the cessation of this industry, 
the nation was able to bear the strain with surprising 
ease. The money market, however, became much 
affected towards the close of 1863, and during almost 
the whole course of the next year the value of money 
was very high. Indeed, it may be said that, at this 
time, there occurred one of those semi-crises sometimes 
observable during the course of a decennial period. 


This speedily passed away, and the nation resumed its 
career of prosperity unchecked, until inflated credit 
and over speculation brought about their invariable 
sequel. It is probable that joint -stock enterprise 
received a great stimulus by the passing of the 
Companies Act of 1864, under which the formation 
and incorporation of all kinds of companies was much 

The record of banking in Scotland during this 
period is marked in the main by increasing prosperity, 
development, and consolidation. Only one instance of 
adverse experience occurred ; and it belongs properly 
to the immediately preceding period. The Edinburgh 
and Glasgow Bank whose career we have already 
sketched got into a condition of embarrassment in 
the middle of 1858. Half of the capital (500,000) 
had been written off on 4th February, but the bank 
found the attempt to recover from the discredit into 
which it had fallen during the recent crisis hopeless ; 
and it was fain to seek repose by amalgamation with 
the Clydesdale Banking Company. This operation 
conferred no benefit on the shareholders of the 
Edinburgh and Glasgow Bank, for they received no 
consideration for the goodwill of their business. 
They were indeed freed from danger of calls; but 
they lost their whole right of property in the bank. 
Had they shown sufficient courage in facing their 
difficulties, they might have come out of the struggle 
in a much more satisfactory manner. 1 As it was, the 

1 It is said of one of the directors that, after the board meetings, 
he used to call on a stockbroker of his acquaintance to discuss the 
situation. The clerks, with youthful intelligence, were quite alive 


new connections secured by the Clydesdale Bank 
through this amalgamation, obtained practically with- 
out any outlay, had a material effect in improving 
their business. The number of their branches was 
increased by more than twenty offices of the Edin- 
burgh and Glasgow Bank, many of which were 
believed to be very profitable concerns. 

Another amalgamation secured by the Clydesdale 
Bank was that of the Eastern Bank, in January 
1863. In this case a very handsome price was 
paid for the business, principally in stock of the 
former bank. By these two purchases the authorised 
circulation of the Clydesdale Bank was extended by 
170,293. 1 Next year (20th February 1864) the 
Dundee Banking Company was amalgamated with 
the Eoyal Bank of Scotland the transaction being 
accomplished by a transference of stock of the latter 
bank to the Dundee Bank shareholders. The Eoyal 
Bank thus acquired six new branches, and an increase 
of authorised circulation to the extent of 33,451, 
raising it to 216,451. The Dundee Bank had a 
paid-up capital of 100,000, held by 74 partners, 
selling at 60 per cent premium, with a dividend of 
10 per cent. About the middle of 1864, the City of 
Glasgow Bank increased its capital from 670,869 to 

to their opportunity ; and, when the director was closeted with their 
principal, used to make a pretext for entering the room, so as to be 
able to leave the door open. They thus heard the conversation, and 
were kept au courant of the state of affairs at the bank. They were 
not likely to be more reticent than the director himself. The story 
was told in later years by one of the clerks. 

1 Previously the authorised circulation of the Clydesdale was 
104,028 ; that of the Edinburgh and Glasgow, 136,657 ; and that 
of the Eastern, 33,636, making 274,321 in all. 


850,000 by the issue of new stock to the share- 
holders at a premium of 30 per cent. 1 The Com- 
mercial Bank of Scotland added 400,000 to its 
capital by two allocations of stock, by way of bonus, 
to its proprietors, each to the amount of 200,000 
the first being made in 1859, and the second in 
1864. This was accomplished by a transference from 
the reserved profits of previous years, and occasioned 
much adverse criticism on the part of previous share- 
holders who had sold out in ignorance of the existence 
of so large an accumulation of profits. The paid-up 
capital thus became 1,000,000. This proceeding 
was quite in accordance with traditional usage, the 
old banks having repeatedly acted in this way. But 
the more open system of accounting to shareholders, 
adopted by the Scottish banks shortly after this time, 
and since established as a yearly practice in the pub- 
lication of balance sheets, makes one now regard such 
a transaction as a relic of a bygone age ; as, indeed, 
it has become otherwise, through the practical im- 
possibility now of making such large profits as were 
then obtainable. 

On 6th February 1863, the Scottish banks con- 
jointly took an important step, which had probably 
been forced upon them by the largely-increased extent 
of their branch systems. This was a general instruc- 
tion to their branches to follow at once changes made by 
the Bank of England in the minimum rate of discount. 
The effect of this was to bring the banking system of 
Scotland into more immediate sympathy with the 
monetary system of the world than had formerly been 
1 Oourant, 2nd June 1864. 


the case. It was also an evidence of the increasing 
importance of Scottish banking as part of that system. 

One phase of the Western Bank liquidation which 
came prominently forward at this time has more than 
special interest ; that is the endeavour made to secure 
some value for the right of note-issuing, the exercise 
of which had been lost to the shareholders by the 
failure of the bank. This was no small question, for 
not only did the authorised issue amount to 337,938, 
but, under existing conditions, the right to issue 
practically conveyed the power to carry on the business 
of banking. So early as April 1858 application was 
made to Mr. Disraeli as Chancellor of the Exchequer 
to give whatever legislative sanction might be required 
to enable the bank to dispose of the privilege of issue 
to one or more of the other banks of issue in Scotland. 
But the application was refused. The hope of making 
something out of this lapsed right was, however, main- 
tained for some years; and on llth February 1864 
a bill was introduced into Parliament to divide the 
authorised circulation among the other Scottish banks 
in proportion to their existing authorised issues. In 
his report presented in February 1864, the liquidator, 
Eobert Lumsden, referred to the question and stated 
that a deputation had waited on the Chancellor of the 
Exchequer (Gladstone). He had, however, refused to 
recognise the right as a matter of law, but expressed his 
willingness to consider the application on other grounds. 1 

Later in the year, a provisional committee which 
had been formed for the resuscitation of the bank, 

1 Courant, 26th February 1864. bankers' Magazine, 1864, pp. 
310, 366, and 475. 


applied for a free grant of the lapsed right of issue ; 
but this the Treasury declined to accede to. As is 
well known, all the efforts made in this direction came 
to nothing. Indeed, in face of the 12th section of the 
Act of 1844, it is difficult to understand how the 
negotiations went as far as they did. Doubtless the 
warm feeling of sympathy for the injured shareholders 
which existed, must have prompted the desire to afford 
them every chance of obtaining this mitigation of 
their losses. 

An effort at legislation in connection with Scottish 
banking (in its currency aspects) was made in 1864, 
by the introduction of a bill by Sir John Hay, with 
the object of making Bank of England notes a legal 
tender in Scotland. The Chancellor of the Exchequer 
discouraged the attempt, and when Mr. Adam Black, 
one of the members for Edinburgh, seconded by Mr. 
Dalgleish, moved its rejection, it was withdrawn. 1 

The activity manifested in the formation of bank- 
ing companies, to which we have referred, affected 
Scotland to a slight extent. No new native bank was 
proposed ; but two or three companies were formed in 
England whose object was, more or less, to do business 
in Scotland. Probably the first of these was the 
Scottish and Universal Finance Bank, Limited. It 
does not, however, concern us much, for notwithstand- 
ing its designation, it appears to have been more 
anxious for a name than for a local habitation that was 
Scottish. It was really a finance company, not a bank. 
In 1865 it is referred to as bankrupt. Another 
was the Mercantile and Exchange Bank, Limited, 

* jftmoirt of Adam JBlack, Nicolson, Edinburgh, 1885, 


established in Liverpool early in 1863. It opened 
a branch in Glasgow which it withdrew eighteen 
months later. In the same year the London Bank of 
Scotland, Limited, was formed, which had branches in 
Edinburgh and Glasgow. Proceedings for the amalga- 
mation of these two by merging the London Bank in 
the Mercantile were proceeding, and the former was 
actually put into liquidation with that object, when 
the suicide of the manager of the Mercantile Bank 
caused delay for investigation. 1 

The proceedings, were resumed, however, when an 
arrangement was made that some of the branches of 
the London Bank (including the Edinburgh Office 
at No. 17 Princes Street) should be taken up by 
a specially formed company, the London and Scottish 
Bank, Limited. Within about six months, being 
pressed for payment of 2000, this new venture 
applied for, and obtained, a winding-up order. The 
Mercantile and Exchange Bank was in difficulties 
in 1864, which, however, it overcame. The character 
of its business may be gauged by the fact that in 
1866 its directors congratulated the shareholders 
that their losses did not exceed 131,337:10:2. 
The London Bank acknowledged losses to the extent 
of 65,554. The extent of these banks' business in 
Scotland is not revealed ; but it was not supposed to 
be much. On the other hand, the aggregate business 
as shown by a balance-sheet of 1866 was considerable 
for a two years' career ; and there is reason to think 
that the want of success, in England at least, was due to 
ignorant management. This English invasion of Scot' 
* Courant, December 1864. 



land was followed by a return visit on the part of the 
Scots which will form the subject of a subsequent chapter. 

The year 1866 is described in contemporary history 
as " gloomy, eventful, and ominous." In its financial 
aspect it was one of great disturbance in the money 
market, of bankruptcies of merchants and of bankers. 
The year opened with the bank minimum rate of 
discount at 7 per cent, from which it was soon raised 
to 8 per cent. It thereafter gradually fell to 6 per 
cent until May. It then rose with great rapidity. 
On 3rd May the rate was placed at 7 per cent, on 
the 8th at 8 per cent, on the llth at 9 per cent, and 
on the 12th at 10 per cent. At that point it stood 
until 16th August, when it fell to 8 per cent, and 
thereafter gradually diminished to 3^ per cent at the 
close of the year. Symptoms of the approach of a 
state of crisis seem to have become apparent towards 
the close of 1865; but it was not before the com- 
mencement of the new year that anything of a marked 
character occurred. Then one or two English country 
banks failed. Subsequently uneasiness began to exist 
in London. The Joint-Stock Discount Company, 
Limited, suspended payment on 7th March, with 
liabilities amounting to 3,657,229, and other bank- 
ruptcies took place. 

But the phase of crisis was not reached until 10th 
May, when Overend, Gurney & Co., Limited, failed, 
with liabilities to the extent of 18,727,915. This 
was a crushing blow, for not only was the amount 
involved enormous, but this discount house was 
relied on as a strong establishment. The shock to 
credit was almost unprecedented, and general panic 

THE CRISIS OF 1866 275 

ensued. The Agra and Masternian's Bank, Limited, 
and the Consolidated Bank, Limited, were forced to 
suspend for the time being ; and the Bank of London 
and other establishments went into liquidation, while 
even the strongest were doubted. The credit system 
was thrown into a state of paralysis. But this was 
not long continued. The Government, taught by 
experience, at once authorised the Bank of England 
to exceed the limits of their circulation fixed by the 
Act of 1844, on condition of the minimum rate of 
discount being raised to 10 per cent. This was done 
on 12th May, and the panic was at an end when men 
knew that accommodation could be procured. Thus, 
for the third time, the great banking Act of 1844 
was infringed, under the responsibility of the Govern- 
ment, for the salvation of the business of the nation. 

The crisis did not affect banking in Scotland to 
any serious extent. No panic occurred, nor did any 
distrust in the banks manifest itself. Indeed, the 
banks rather gained than lost by it ; for while they 
benefited by the high rate of interest, their credit 
was improved by the steady way in which they came 
through this time of trial. Shortly before this the 
National Bank of Scotland had been tempted to essay 
an inroad on the London field, which was successfully 
carried out; and it is understood that, as a result of this 
crisis, their business there was established on an exten- 
sive basis. It was the commencement of an invasion 
which was continued by others of the Scottish banks in 
later years, and which led to complications, involving 
a good deal of heated controversy on the part of 
English bankers which has now happily cooled down. 



IT will be proper, at this point, to devote some con- 
sideration to the establishment of an institution which 
has exercised an important influence on the banking 
world of Scotland during the quarter of a century of its 
existence, and which, if prudently conducted, is calcu- 
lated to materially benefit future generations of bank 
officers, and to elevate banking to a position partaking 
somewhat of the nature of a scientific profession. 

Up to the time of the formation of the Institute 
of Bankers in Scotland, the education of bankers in 
the theory and practice of their profession nay, even 
the ascertainment of their most ordinary educational 
acquirements was of the most haphazard description. 
Not the smallest attempt was made either to encourage, 
or to provide means for, the study of the theory of 
banking. It may be thought that the practice, at all 
events, would be learnt in the discharge of daily duties ; 
and to some extent this was necessarily the case. 
But no effort was made to induce young bankers to 
acquire any but a mechanical knowledge of details ; 
and from the thorough way in which their interests 



were neglected by their superiors, there was instilled 
into their minds a conviction of the uselessness of efforts 
at self -improvement. Their directors and managers 
virtually sometimes actually told them that they 
need not hope for promotion. The more active- 
minded of the young men, who would think and study 
in spite of all discouragements, were either snubbed 
or left to cool their ardour in the shade of neglect. 

It was the practical experience of this state of 
matters which led the present author to write an 
article, which appeared in the Money Market Eeview 
of 2nd May 1874, advocating a more systematic 
consideration of the interests of young bankers, as at 
once advisable from motives of justice and of policy. 
Among other suggestions it was proposed that a system 
of examinations should be established, in connection 
with which certificates would be issued to the more 
proficient candidates. It is highly probable that these 
suggestions would not have produced any practical 
result, had not the idea been taken up by a gentleman 
possessing the influence and energy necessary for 
conducting it to a successful issue. To Mr. John 
Gifford, late cashier of the National Bank of Scotland, 
belongs the credit of inaugurating and effectively 
conducting the desired reformation. Mr. Gifford 
addressed a letter to a literary society of bankers, 
of which he had at one time been president, urging 
them to consider the advisableness of establishing a 
system of classes, courses of lectures, and examinations, 
and the provision of libraries, bursaries, and all neces- 
sary accessories for the acquirement of financial and 
general knowledge. The society took the matter up 


warmly, and referred it to a committee to consider 
and report as to the feasibility of such a scheme, In 
the capacity of secretary to that committee, it devolved 
on the present writer to lay some practical scheme 
before the members. He accordingly proposed that 
the society should not attempt to undertake such 
responsible duties, but should promote the institution 
of a new association, which would be representative 
of the profession as a whole, in all its grades, through- 
out the country, and therefore, commanding an amount 
of authority and influence sufficient to give confidence 
in its diplomas, and to secure general interest in its 

On this basis a scheme was drafted, which secured 
the approval of the society. It provided for the 
formation of a provisional committee, partly appointed 
by the banks and partly by the society. After some 
untoward hesitation on the part of some of the banks, 
which required all Mr. Gifford's tact and good manage- 
ment to overcome, that committee was eventually 
constituted. The practical designing of the edifice 
was a laborious work ; but the members of the com- 
mittee were earnest for its completion, and spared no 
effort to secure its accomplishment. Mr. Hamilton 
A. Hotson, now manager of the British Linen Company 
Bank, undertook the duty of preparing the constitution 
of the new association (whose name was until almost 
the last moment a matter of uncertainty) ; and it 
speaks well for his foresight and discretion that, with 
the modifications made by the committee, twenty-seven 
years' experience has only produced a single alteration 
on it, and that not an admitted improvement. 


The movement, which at first was confined to 
Edinburgh, received a great accession of vitality when 
Mr. James A. Wenley, then manager of the Bank of 
Scotland in Glasgow, began to identify himself with 
it. He organised a Committee in Glasgow, in corre- 
spondence with that in Edinburgh, and was the means 
of creating and directing a widespread enthusiasm in 
the West of Scotland in favour of the scheme. But 
it was not alone in the West that his influence was 
felt. To a very great extent the scope and action of 
the Institute were thenceforth moulded by him. No 
important step was taken in the movement which was 
not either suggested by him, or first received his 
approval. He threw himself into the work with an 
amount of ardour and personal exertion which must 
have occasioned him much self-sacrifice, but which at 
the same time enabled the new vessel to be launched 
with much idat. He was also instrumental in pro- 
curing from the banks promises of recognition and 
material support. 

A meeting of those gentlemen who had formally 
intimated their adhesion to the proposed association 
was held in the Bank of Scotland, Edinburgh, on the 
evening of the 6th July 1875, when the Institute of 
Bankers in Scotland was constituted, with a member- 
ship of about 200. Mr. David Davidson, at that 
time treasurer of the Bank of Scotland, who had 
warmly espoused the cause, was elected president. 
Three vice-presidents, among whom Mr. Gifford natur- 
ally found a place, and other office-bearers, were elected 
at the same time. The Council, consisting in all of 
twenty -one members, embraced representatives from 


all the banks in Edinburgh and Glasgow. Nearly all 
of these held official position in the banks, so that the 
Institute at once secured an influential position. 

In spite of the numerous difficulties which invari- 
ably beset new schemes, the success of the Institute 
was both rapid and marked. The membership, begin- 
ning, as we have said, with 200, was reported to the 
first annual meeting as 582. Two years later (1878) 
it stood at 925. Owing in great measure to the 
untoward effects of the crisis of that year, involving 
the failure of the City of Glasgow Bank, which itself 
contributed 107 names, the roll subsequently dropped 
to 759. The last report states the number as 1219. 
That number is in itself satisfactory proof of the 
continued interest of the profession in the proceedings 
of the Institute. Tor it must be borne in mind that, 
since 1878, it has become almost impossible to gain 
admission except through examination. The examina- 
tions have been attended with much success, more 
than 450 candidates presenting themselves annually. 
The chief centres of the Institute's operations have from 
the first been at Edinburgh and Glasgow, but more 
recently, through the influence of the managers of the 
North of Scotland, Town and County and Caledonian 
Banks, centres have also been established at several of 
the large towns. Besides the annual examinations, 
there have been regular courses of lectures on banking, 
financial and literary subjects, political economy, bank- 
ing law, etc. The other operations of the Institute 
have included annual essay competitions, and the 
establishment of libraries and reading-rooms for the 
use of all members of the profession. 


It cannot be doubted that the Institute has been 
instrumental in fostering, to a large extent, the spirit 
of self-improvement among the younger members of 
the banking profession ; and, in a less degree, it has 
tended to advance the scientific study of banking and 
economic subjects. It has also been the means of 
enabling energetic young bankers to obtain lucrative 
situations in English and Colonial banks, by the use 
of its examination certificates. That it has not 
accomplished more is hardly its fault. It is often 
said that it does not improve young men's chances of 
promotion in their own banks ; and it must be 
admitted that, while the banks have acted handsomely 
in regard to pecuniary aid, they have not given the 
still more desirable assistance of recognising its certifi- 
cates in a practical manner. Too little allowance, 
however, is made for the great difficulties in the way 
of an immediate adoption of such action. Old officers 
cannot be overlooked in favour of young ones, how- 
ever brilliant their qualifications; and, besides, the 
mere possession of certificates of knowledge does not 
prove suitability for office. 

Although the Institute of Bankers in Scotland 
was the first association of its kind which was suc- 
cessfully established, an important attempt of a some- 
what similar nature had been made previously. Half 
a century ago, the late Mr. W. H. Logan, banker, 
Berwick-on-Tweed, previously and subsequently resi- 
dent in Edinburgh, projected an Incorporation of 
Bankers, which seems actually to have been formed, 
so far as the enrolment of members is concerned, 
although it never came into active existence. The 


preliminary meeting was held at the London Tavern 
(a well-known meeting-place, subsequently purchased 
by the Koyal Bank of Scotland), on 22nd October 
1851, when about 300 gentlemen connected with 
banking attended. A proposal submitted to form a 
Banking Institute was approved of, and a committee 
or " Council " appointed. But, for some unexplained 
reason, the project seems to have been dropped. The 
scheme was revived by a correspondence in the 
Bankers' Magazine during 18*70 ; but, although Mr. 
Logan again gave a detailed account of its objects, it 
was not proceeded with. On the establishment of the 
Institute in Scotland, the idea was warmly taken up 
in Ireland ; but the state of that country prevented a 
successful issue. The bankers of London were more 
fortunate in efforts which they made in the same 
direction, and the well-known Institute of Bankers 
was founded under influential auspices. Their Journal 
has rendered excellent service to the profession, both 
in the way of giving information to young bankers 
and in ventilating questions of interest; and their 
examinations and other operations must have been pro- 
ductive of good results, similar to those accomplished 
in Scotland. 



THE period with which we have now to deal, namely, 
that extending from the great crisis of 1866 to the 
(in some respects) even more disastrous convulsion of 
18*78, is full of stirring incidents in the political, 
commercial, and financial world. Early in 1867, 
Fenianism developed itself to such an extent as con- 
siderably to retard trade (especially that of British 
manufacturers with Ireland), and seriously to alarm 
the public mind. Towards the close of that year the 
first of those dastardly conspiracies, which subsequently 
became so common in pursuance of the so-called 
" policy of dynamite," was manifested in a fatal ex- 
plosion at the Clerkenwell House of Detention in 
London. Wars, in which Britain was either directly 
engaged, or seriously interested, succeeded each other 
with but little intermission. The French troubles in 
Mexico in 1867, although the sequel to British action 
in connection with France, did not compromise this 
country; but, in the succeeding year, Britain was 
forced to undertake a military expedition to Abyssinia, 
which, under the direction of General Napier, fortu- 



nately proved a great success. The cost was, however, 
very serious. 

Next year the Eastern question again became 
troublesome; and in 1870-71 the great struggle be- 
tween France and Germany, with its attendant dis- 
organisation of commerce and finance, took place. 
This was immediately followed by the outbreak of 
hitherto suppressed villainy in Paris, which manifested 
itself in the temporary establishment of the Commune. 
In 1873-74 Britain was engaged in war against the 
Ashantees in Africa. Soon afterwards the Eastern 
question assumed a very grave aspect; and, to aid 
Egypt and to protect her Indian interests, Britain 
effected the purchase, in 1876, of the Khedive's Suez 
Canal shares at a cost of about 4,000,000. Next 
year hostilities broke out between Kussia and Turkey, 
and ended, in 1878, by the submission of the latter 
State. In the readjustment of matters Britain took 
a leading part ; but the warlike policy of this country, 
though necessary, was very costly. In the closing 
months of the latter year, India was engaged in an 
expedition to Afghanistan, which was successfully con- 
ducted under General Eoberts. 

Meanwhile the arts of peace had not been neglected. 
There was a great Exhibition of the products of all 
the world in Paris in 1867, at which this country 
was well represented. Several great industrial works 
were accomplished, such as the Union Pacific Eailway 
in the United States, and the navigable canal from 
the Mediterranean to the Eed Sea, both of which, but 
especially the latter, were destined to greatly influence 
the commerce of Britain. They were both opened in 

PERIOD 1866-1878 285 

1869. In Scotland, a great engineering feat was 
accomplished by the opening of a railway viaduct 
across the river Tay at Dundee. But, unlike all 
other great engineering projects carried out in Britain, 
the sequel was destined to make this bridge more a type 
of inferior workmanship than a monument of national 

The crisis of 1 8 6 6 was mainly financial in character. 
Trade, both home and foreign, was good at the time 
when it occurred. A change, however, speedily followed 
on the distrust engendered by the financial disasters 
which took place. This was increased by a railway 
crisis which occurred in the middle of 1867, and by 
the pressure of calls in connection with joint-stock 
companies formed in great numbers previous to the 
crisis. It is noticeable, however, that the trade of 
Scotland did not so readily lose its vitality. The 
crisis had not affected it to a serious extent ; but 
eventually it suffered in sympathy with the trade of 
England. Depression lasted until the middle of 1870, 
four years after the crisis, and then a decided revival 
occurred. The Franco -German war had a bad in- 
fluence ; and in the next year there was much dis- 
turbance on account of the payment of the indemnity 
and the loans negotiated in connection therewith. 
But no sooner had matters been fairly settled, than 
trade at home and abroad expanded, almost suddenly, 
to unparalleled proportions. For fully a year this 
high-pressure trade was continued. But the harvest 
of 1872 was deficient, and there was a turn in the 
tide of prosperity. It soon became evident that there 
had been great inflation. The last five years of the 


period marked increasing depression. By the month 
of June 1875, the bad state of Indian trade mani- 
fested itself conspicuously in the collapse of the great 
house of Alexander Collie & Co. Following, as it did, 
a series of heavy failures in the iron trade, this 
disaster produced a semi-crisis, in the course of which 
a considerable number of other firms came down. 
Heavy losses were entailed on bankers, one or two 
Scotch banks suffering severely. 

For some time after the crisis of 1866 the state 
of banking was, as might naturally be expected, very 
unsatisfactory. There was a prevalence of low rates, 
and much difficulty in profitably employing capital. 
But this state of matters gradually wore off, and 
banking in Scotland entered on a new phase of ex- 
tension. So early in the period as 1869 about a 
hundred additional branches had been opened, many 
of them being sub-offices in Edinburgh and Glasgow. 
During the height of commercial prosperity, the 
number of bank offices rose to nearly nine hundred, 
or an increase of nearly three hundred in seven years. 
But the process was not checked by the cessation of 
prosperity, for year by year the number rose until, in 
1878, there were fully nine hundred and fifty bank 

In view of the rampant speculation in bank shares 
which had been manifested prior to 1866, an Act 
(popularly known as Leeman's Act) was passed in 
1867, prohibiting the purchase and sale of bank 
stock, unless the specific stock to be transferred was 
definitely indicated, and misrepresentation was made 
a misdemeanour. Although the intention of the 

LEEMAN'S ACT, 1867 287 

Legislature in this matter was highly laudable, the 
Act has not proved a success. It does not appear that 
it is unworkable, or even unsuitable to the require- 
ments of investors, but it is so uncongenial to specu- 
lators that they systematically evade it. This they 
can do very easily, as there is no one whose special 
interest or duty it is to question their actions. There 
is reason, however, to believe that, in a passive way, 
the Act has had a beneficial tendency ; for, although 
speculation in bank shares is still carried on, there 
is a prevailing feeling against it. The comparative 
neglect of bank shares by speculators may be due in 
great part to the greater attractions of other securities ; 
but undoubtedly the spirit of the directions of the 
Legislature is often followed in the business world 
when the letter seems to be directly violated. 

In 1868, the beginning of the end of the liquida- 
tion of the Western Bank of Scotland came into view. 
In that year there were two payments, the one of 
7 : 10s. and the other of 3 per share, made to the 
solvent shareholders by way of return of surplus 
funds. This completed eight returns, amounting in 
all to 68 per share, on which 175 in all had been 
called, including the original sum of 50. In other 
words, 250 per cent had been called for the purposes 
of the liquidation; and of this 136 per cent had 
been returned. In 1870, the outstanding liabilities 
were assumed by the National Bank of Scotland in 
consideration of a payment of 8448 : 1 : 4. The 
final completion of the liquidation was, however, 
delayed for other three years by the dependence of 
litigation with wealthy ex-directors. 


The extension of Scottish Banking, to which we 
have already referred, was not wholly confined to 
Scotland. The National Bank of Scotland had opened 
an office in London in 1864. This step having 
seemingly been attended with much success, the Bank 
of Scotland imitated the example set a few years 
later. The Koyal Bank of Scotland, in 1874, also 
opened an office in London, having obtained a special 
Act of Parliament, authorising them to do so, in the 
previous year. These successive movements were by 
no means relished by the London bankers, and they 
were also jealously objected to by English provincial 
bankers, who felt themselves aggrieved by the per- 
mission given to Scotch issuing -banks to establish 
themselves in London, while retaining their powers 
of note-issuing elsewhere a privilege which was 
denied to English bankers. The heat of opposition 
was, however, gradually expending itself, when the 
Clydesdale Banking Company made a sudden raid on 
the English preserves by planting three branches in 
Cumberland, nominally for the convenience of their 
customers in the South of Scotland. This was the 
signal for the renewal of the contest on a grand scale. 
The battle became general all along the line. London 
bankers, London and provincial bankers, and English 
provincial bankers, joined in protecting their common 
interest. The conflict was carried into Parliament, 
where Mr. Goschen introduced (1875) a bill, the object 
of which was to drive the Scottish banks back to their 
own country. His efforts, however, although strongly 
supported, ended in the temporary compromise of a 
select committee " to consider and report upon the re- 


strictions imposed and privileges conferred by law on 
bankers authorised to make and issue notes in England, 
Scotland, and Ireland respectively." After arduous 
labours, and the accumulation of a large mass of more 
or less valuable information, the committee reported to 
the House without making any recommendation other 
than their reappointment next session. This suggestion 
was not, however, acted on ; and very soon all the 
other large Scottish banks, except the Commercial Bank 
of Scotland, opened offices in London without more 
opposition than that conveyed in indignant growls and 
threats of future vengeance. The Commercial Bank 
saw fit to join the concert in July 1883. 

Much interest was excited, towards the close of 
1866, by the discovery of a forgery of the 1 notes of 
the Union Bank. The perpetrators were John Henry 
Greatrex, a photographer in Glasgow, Sewell Grimshaw, 
an engraver, and Thomas Grimshaw, who financed the 
adventure. The manufacture was carried on in Great- 
rex's premises ; and several months were spent in the 
process. Photography was first tried, but discarded 
in favour of engraving on a copperplate and transferring 
to a stone for printing. Lithography seems thus to have 
been the finally approved system, with the numbers 
type printed, and the signatures written. It is stated 
that nearly 1400 notes were prepared ; but the evidence 
of witnesses indicates a much larger number. It does 
not appear, however, that many were actually passed 
before the forgery was discovered. Greatrex, who had 
gone to Aberdeen in happy confidence of having achieved 
success, was greatly surprised at the early detection ; 
and, leaving his wife and child, fled to New York, 



He was accompanied by one of the women in his em- 
ployment, Jane Weir, whom he had taken into his 
unholy confidence. The police followed him to New 
York, but lost his trail. A bogus advertisement for 
a first class photographer, however, lured him from his 
den. He walked into the trap, and was brought back 
to Scotland, where his confederates had already been 
arrested in the act of uttering the spurious notes. The 
trio were tried in the High Court, Edinburgh, on 9th 
to llth May 1867, and were sentenced, Greatrex to 
20 years' and the others to 15 years' penal servitude. 

A few minor banking incidents fall to be recorded. 
The Bank of Scotland opened an office in London on 
15th April 1867 ; and they purchased, in 1868, the 
business of the Central Bank of Scotland, whose head 
office was in Perth. This bank had ten years 
previously a paid-up capital of 78,125, on which a 
dividend of 8 per cent was paid ; and about the time 
of the amalgamation the capital was 100,000 in 
40 shares which sold at 111. The dividend in 
1867 was 1 2^ per cent. The bank had nine branches. 
In 1873, the same bank obtained a seventh Act of 
Parliament, increasing its authorised capital from 
1,500,000 to 4,500,000. The extra powers thus 
given have as yet only been availed of to the extent of 
375,000, of which 250,000 was called up. This 
issue of stock was made in April 1876, and, as it 
was- made at a premium of 375,000, the bank was 
enabled to raise its reserve fund to 750,000, and also 
to write off the balance of the price paid for the Central 
Bank business. 

During the currency of this period, the volume of 


Scottish banking business had largely increased. In 
1865, the total liabilities were about 77 millions. 
Seven years later they were 96J millions. In 1877, 
they reached their highest point, namely, 108f millions. 
Next year they dropped to 1 6 millions, even including 
the balance sheets of the City of Glasgow and Caledonian 
Banks. This reduction, however, was more probably 
owing to withdrawals from certain banks who balanced 
after the crisis of 1878 than to any general decrease 
in the liabilities of the banks during the year. 



THE first three-quarters of the year 1878 are notice- 
able for little except a continuance of depression in 
the national industries and commerce. Heritable 
property, which is always last in being affected by 
alterations of prosperity and adversity, began to show 
symptoms of depreciation ; but prices were maintained 
to an extent which seemed to justify hopefulness of 
the future, and proved that there was little pressure 
on holders. Indeed, the nation did not show signs 
of impoverishment from the long-continued experience 
of bad trade. The Scottish banks seemed to be in 
a satisfactory state; if money was accumulating in 
their hands from the want of proper channels for its 
profitable employment, they were at least able to 
maintain their dividends at the former rates. There 
was nothing in their reports to indicate the imminence 
of untoward events. People were rather looking and 
longing for a return of prosperity, than groaning under 
the experience of adversity. 

In these circumstances, rumours, which first 
received utterance in the London correspondence 



columns of the Glasgow News, towards the end of 
September, regarding difficulties on the part of one of 
the banks in Scotland, were received with incredulity. 
In banking circles only one opinion as to which bank 
was referred to received any support. It was freely 
said that if any of the Scottish banks was in a weak 
condition, it was the City of Glasgow Bank. But 
there was no alarm, for it was confidently believed 
that the report would prove to be a Stock Exchange 
canard. So little effect had it, that the prices of 
Scottish bank stocks were not materially affected ; 
and in a very few days it almost ceased to be spoken 
of. There was, however, a general pressure of sales of 
pledged railway and other stocks, indicative of im- 
pending disturbance; but this circumstance did not 
attract general notice. Notwithstanding this extra- 
ordinary public confidence, negotiations were all the 
time being carried on by the City of Glasgow Bank 
and the Edinburgh banks, through the Bank of 
Scotland, with the object of obtaining assistance. 

As far as its business in Scotland was concerned, 
the City of Glasgow Bank was not in the slightest 
degree inconvenienced. The depositors were sleeping 
as soundly as if their money had been invested in 
Government securities, and noteholders would not 
have accepted sovereigns in exchange. The London 
money market, however, had begun to feel that it 
had absorbed a sufficiency of City Bank paper. Un- 
able longer to retire maturing bills with new paper, 
the bank had the greatest difficulty in taking them 
up, and saw that in a very short time its available 
resources would be exhausted. In these circumstances 


it sought an advance from the other banks, to enable 
it to tide over its difficulties. It would seem that, in 
consequence of the prevalence of rumours about the 
position of the bank, the Bank of Scotland had, on 
llth September, urged the City Bank to retire a 
large amount of their acceptances; whereupon the 
latter bank asked if they might rely on assistance 
from the other banks to the extent of 200,000 or 
300,000 an estimate of requirements which they 
subsequently extended to 500,000. Further negotia- 
tions having revealed the fact that the bank was 
involved with a few firms to the extent of some 
millions sterling, on the 28th September an examina- 
tion of the books by an Edinburgh accountant was 
decided upon. After receiving his report, the banks 
declined to give any assistance; and, on the 1st 
October, the doors of the City of Glasgow Bank were 
closed at the usual hour, never more to be re-opened 
for business. 

The announcement of the suspension of the City 
of Glasgow Bank, which appeared in the newspapers 
of the 2nd October, had a paralysing effect throughout 
the business community, and feelings of alarm and 
distrust arose among the general public. The City 
Bank, although never in the enjoyment of the thorough 
confidence of the other banks, was known to have a 
large proprietary whose liability was unlimited, and 
had therefore been always trusted as much as any of 
the others. In the eyes of the general public it 
obtained a full share of credit. Although the youngest 
of the existing Scottish banks, it had, by a constant 
policy of branch extension, built up a deposit business 


of over 8,000,000 ; and, as its reports were always 
framed so as to show steady progress, it was in many 
quarters regarded as the most active and prospectively 
prosperous bank in Scotland. Its customers and 
shareholders would sometimes taunt the officials of 
the older banks with being " old-wifish " and slow of 
movement. Its stock, moreover, commanded a good 
price in the market. It afterwards appeared that 
there was actually a considerable pressure of sellers, 
and that the price was maintained only by continual 
purchases on account of the bank itself; but these 
facts were unknown to the general public, who naturally 
estimated the position of the bank to a great extent 
by the Stock Exchange quotations. The revulsion of 
feeling from confidence to distrust was naturally very 
strong. People had believed so thoroughly in the 
banking system, that the failure of one member of the 
circle tempted them to lose belief in all. But it 
must be said that the public acted with wonderful 
prudence and self-control. The action of the other 
banks greatly tended to this result ; for they at once 
announced that, with a view to lessen the inconvenience 
of the stoppage to the public, they would receive, in 
the ordinary course of business, the notes of the City 
Bank which were in circulation. 

From the first no hopes of resuscitation were held 
out by those conversant with the bank's affairs ; and, 
although for several days no details of the extent of 
the disaster were forthcoming, fears of a very grave 
state of matters were steadily increased. These were 
augmented by the failure of some London and East 
Indian houses, and rumours of further suspensions. 


On the 5th October, Dr. M'Grigor and Mr. Anderson, 
who had been asked to examine into the state of the 
bank, reported that it would be advisable to wind up 
the business ; and a meeting of the proprietors was 
summoned for the 22nd of the same month. Mean- 
while the banks were actively engaged in making 
arrangements for accommodating City Bank depositors 
who might require the use of their money, and for 
taking up branch offices of the bank. 

Until the 19th inst. almost nothing transpired 
regarding the position of the bank ; but failures in 
various parts of the country were daily announced, 
some of them being for heavy amounts. Nevertheless, 
a somewhat easier feeling prevailed throughout the 
community. It was, therefore, with feelings of sur- 
prise, indignation, and dismay that the public read 
the report of the investigators, which was issued late 
on the evening of the 18th. The Scotsman of 19th 
October records that " the report of Dr. M'Grigor 
and Mr. Anderson brings out a state of matters 
which far exceeds the anticipations of the most 
despondent shareholder. The actual loss amounts to 
the almost fabulous sum of 6,190,983:11:3, 
which, deducting the capital of 1,000,000, leaves 
5,190,983:11:3 of a deficiency to be made good 
by the shareholders. This estimate takes no account 
of the reserve fund of 450,000. Amongst other 
startling disclosures, the investigators say that the 
shareholders had been led to believe the bank 
had lent upon credits less than was the fact by 
1,126,764; that the bank had good securities 
belonging to themselves absolutely more than was the 


fact by 926,764; and that there was more reserve 
gold in the bank than was really the case by 
200,000. The total amount represented by bad 
debts, estimated at 7,345,357:15:6, the bank 
had been in the habit of treating in the balance-sheet 
as an available asset. Four debtors under this head 
owe the bank 5,792,394, while the securities held 
show a deficit of 4,269,957. The investigators add 
that 'it is by no means improbable that our own 
estimate is beyond the mark, as the bank's title to 
much of what we have entered as good is of a very 
imperfect description.' " 

Such, in abstract, was the frightful statement 
presented to the shareholders and the public as the 
first official account of the position of the bank's 
affairs. It is no exaggeration to say that people were 
stupefied by the astounding disclosure. No such 
failure had ever previously been known. As was 
naturally to be expected, public and private comment 
was of the fiercest description. Yet the attitude of 
the shareholders and of the public was that of 
dignified self-restraint. Eighteous indignation was 
hurled at the offenders ; but there was little tendency 
to confound the innocent with the guilty. One or 
two of the banks suffered for a short time from 
diminished confidence on the part of the public ; but 
the satisfactory manner in which they met their 
engagements speedily restored their credit. Most of 
the banks were not exposed to any actual trial ; and 
the older banks reaped a rich harvest of business 
from the suspension. 

Immediately after the publication of the report of 


the investigators as to the affairs of the City of 
Glasgow Bank, the directors, manager, and secretary 
of the bank were arrested on a charge of fraud the 
latter, however, being subsequently accepted as a 
witness. This action of the authorities met with the 
unanimous approval of the public. Indeed, con- 
siderable excitement was created by an apparent 
probability that the state of the law would necessitate 
the prisoners' liberation on bail for 300 being 
tendered. But to the charge of fraud, that of theft 
was added, and only one of their number was per- 
mitted to avail himself of the privilege. The trial 
commenced before the High Court of Justiciary, at 
Edinburgh, on 20th January 18*79, and lasted for 
eleven days. The jury found the prisoners guilty of 
fraud, and next day, 1st February, the Court sentenced 
two of them to eighteen and the others to eight 
months' imprisonment. 

The first meeting of the shareholders, after the 
stoppage, took place in Glasgow, on 22nd October 
1878. It passed off with remarkable quietness, due 
in great measure to the absence of the imprisoned 
directors, but also, doubtless, to the utter futility 
of remonstrance. It was resolved unanimously to 
liquidate the affairs of the bank voluntarily. (Sub- 
sequently, 2 7th November, the liquidation was put 
under the supervision of the Court of Session, the 
First Division of which was for a long time entirely 
occupied therewith, and with cases relative thereto). 
Four liquidators were appointed, and a committee of 
shareholders was nominated to consult with them. A 
few days afterwards a call of 500 per cent on the 


capital stock was announced, payable in two instal- 
ments, on 22nd December and 24th February following. 
This step naturally elicited much comment, some 
persons expressing surprise at the largeness of the call, 
others considering that it should have been much 
larger. For the most part, however, the action of the 
liquidators was viewed as a prudent preliminary step ; 
it being thought that a smaller sum would have been 
quite inadequate, and that one materially greater 
would have seemed harsh as a first measure. 

A number of failures followed immediately on the 
stoppage of the bank. Of these, several very large 
ones were those of firms in direct connection with the 
bank, and through whose operations the disaster had 
been chiefly produced. The most important of these 
firms was James Morton & Co., whose liabilities 
amounted to about 2,500,000. Others were Smith, 
Fleming & Co., with 1,600,000 ; Matthew Buchanan 
& Co., 1,310,000; John Innes Wright & Co., 
750,000; Glen, Walker & Co., 445,000; and 
Potter, Wilson & Co., whose affairs, including the 
private estate of the senior partner, showed a surplus 
of about 70,000. From day to day numerous other 
failures occurred notably that of Heugh, Balfour & 
Co., with liabilities to the amount of 400,000, and 
trifling assets. Although technically a distinct sus- 
pension, that of the Bank of Mona was practically 
part of the failure of the City of Glasgow Bank, with 
which it was amalgamated, while retaining its corporate 
identity. Another bank failure was that of J. & J. 
Fenton & Sons, at Kochdale, who, while nominally 
private bankers, were actually stockjobbers. Sub- 


sequently (9th December), a more important English 
bank, the West of England and South Wales District 
Bank, was forced into liquidation ; but it was after- 
wards resuscitated as the Bristol and West of England 
Bank, Limited. 

One of the most painful consequences of the 
disaster the more painful from having been perfectly 
unnecessary was the suspension of the Caledonian 
Banking Company. It most unfortunately happened 
that that bank had taken over from a customer 400 
of City Bank stock, in security for an advance, and 
had thus become liable as a shareholder. The excite- 
ment of the time exaggerated the extent of probable 
liability of wealthy shareholders, the opinion being 
expressed that even the total estates of all the share- 
holders, including the Caledonian Bank, might be 
insufficient to meet the requirements. This, of course, 
was an erroneous supposition ; but allowance must be 
made for the heated imagination of people who were 
dealing with a crisis without precedent, and for the 
fact that the question of the personal liability of 
trustees holding stock was in suspense. In the event 
of trustees having been absolved from liability, the 
pressure upon ordinary shareholders would have been 
greatly increased. The shareholders of the Caledonian 
Bank were seized with panic, and threw their shares 
into the market, glad to be rid of them on any terms. 
Dreading the contingency of the shares of the bank 
getting into the hands of men of straw, who would 
not be good for possible calls, the liquidators of the 
City of Glasgow Bank demanded that the register of 
proprietors should be closed. This, the directors in- 


timated, they had no power to do. The liquidators 
replied by threatening to apply to the Court for the 
liquidation of the bank's affairs. 

Meanwhile, or rather previous to this point in the 
proceedings, negotiations were carried on with the 
Bank of Scotland with a view to the business of the 
Caledonian Bank being acquired by that establishment. 
The entanglements into which the north country bank 
had got its affairs would seem, however, to have been 
too ravelled to admit of this solution of the difficulty. 
They were aggravated, moreover, by a pressure which 
set in on the part of depositors, who were naturally 
unwilling complacently to rely on the responsibility 
of a bank which was seemingly doubted by people 
who might be supposed most capable of judging of its 
contingent liabilities. The little bank fought nobly 
for existence ; but, baffled in its attempts to shake off 
liability, and refused credit for its ability to meet it, 
it had to succumb. On 5th December it closed its 
doors, and an application was made to the Court of 
Session for liquidation of its affairs. Eventually it 
was discovered that the full liability in connection 
with the failure of the City of Glasgow Bank would 
be met by a sum of 11,000 an amount equal to 
one half-year's profits. A guarantee fund of 1 5 0,0 
was raised by the shareholders and their friends ; the 
final decision of the question of the liability of 
trustees, by fixing the responsibility of the full list of 
contributories to the City Bank liquidation, relieved 
the ordinary shareholders of a large share of their 
problematical liability ; and further occasion for pro- 
ceedings against the Caledonian Bank ceased. By 


arrangement, the liquidation order was cancelled, and 
the bank resumed business in August 1879, after 
about seven months' interval. 

A large amount of litigation followed the suspension 
of the City of Glasgow Bank. Indeed, for a long 
time one of the divisions of the Court of Session 
devoted itself entirely to City Bank cases. But, if the 
number of cases was notable, the admirable manner in 
which the Court disposed of them was equally so. 
Celerity and sound judgment went hand in hand, so 
that, in a surprisingly short space of time, the causes 
were satisfactorily disposed of. The great majority of 
the cases were for rectification of the register of 
shareholders ; and in several cases shareholders were 
fortunate enough to get their names erased. But 
attention was centred on the great question of the 
liability of trustees. Only the great interests involved 
could have made this question worth raising. The 
House of Lords had unmistakably given its decision at 
the time of the Western Bank liquidation a decision 
by which the law of Scotland was practically assimi- 
lated to that of England. Very probably that 
assimilation was not warranted ; but it had all the 
force of a legislative assimilation, as far as future cases 
were concerned. For there was no reason to hope 
that the House would stultify itself, by applying an 
English rule on one occasion and establishing an 
opposite Scotch one on another. The test case was 
that of William Muir and Others for Rectification of 
the List of Contributories of the City of Glasgow Bank, 
in which four trustees sought to evade liability on the 
ground that they had not agreed to become individually 


members of the bank. On 20th December 1878 the 
Court of Session refused the petition. The case was 
carried to the House of Lords, but the judgment of the 
Court below was affirmed. 

This was the third of three great banking disasters 
in Scotland, which it is interesting to contrast. The 
Ayr Bank was a high -class concern, founded on the 
landed interest. Although it was doubtless taken 
advantage of by self-interested people, there was more 
of ignorance and folly than of actual iniquity about 
it. The "Western Bank, while not having aristocratic 
connection, was of good commercial standing; and, 
although its infatuation was culpable to a degree 
almost requiring the plea of insanity to excuse it, yet 
it did not descend to criminality. The City of Glasgow 
Bank was never highly esteemed outside the circle of 
its dupes, and seems to have been a long-continued 
fraud. It traded on the respectability of its neigh- 
bours and the unlimited liability of its shareholders. 
Blessed would it have been if, when it temporarily 
ceased the issue of notes in 1857, it had been held to 
have forfeited its right to issue. This would have 
practically terminated its evil career at a comparatively 
early stage. 



THE effect on the public mind of the revelations of 
sufferings entailed on the shareholders of the City of 
Glasgow Bank, by the necessity of providing for the 
enormous deficit discovered in the accounts of the 
bank, was very strong. There was an almost wild 
desire to take the burden from their shoulders, or at 
least to ease the strain to as great an extent as 
possible. It was in this spirit that an association 
was formed with the object of promoting a great 
lottery to raise money, which, after payment of prizes 
and expenses, should be applied in meeting the bank's 
debts. The proposal met with a good deal of public 
approval; and there can be little doubt that, so far 
as the adhesion of supporters was concerned, it might 
have been carried out with considerable success. Led 
away by the hope of achieving a grand result in the 
mitigation of misery, many persons forgot that even 
charity must be founded on high principle. Even 
the Government authorities hesitated to suppress a 
movement which had so much good for its object, 
although it could with difficulty be regarded as 



legitimate. A little consideration, however, convinced 
people that to cure the City Bank troubles by 
imitating the action which had caused them, and 
to pay gambling debts by further gambling, even 
although the sufferers were innocent parties, would 
be a violation of the national honour, and an establish- 
ment of a precedent prejudicial to commercial morality. 
The Crown authorities then intimated that the scheme 
seemed to violate the law; and, after some reasonable 
negotiation, the proposal was withdrawn (January 

It then became evident that the shareholders must 
face their difficulties unaided. They had a duty to 
do, and it must be said that they did it nobly. They 
could not escape their responsibilities, but the spirit 
in which they met them was admirable. But, while 
the public saw that there could be no interposition 
between the debtors and their creditors, they were 
not the less resolved to stand close by and help those 
who fell. A relief fund subscription was opened for 
the benefit of those who were deprived of their means 
of support by the calamity. This at once met with 
great success. People of all classes felt relief in the 
opportunity of affording material assistance to, and 
substantially testifying their sympathy with, the 
hundreds of innocent sufferers whose case had en- 
grossed their attention for months previously. The 
various committees throughout the country obtained 
subscriptions for about 400,000 within a few 
months. Of that very large sum only a small 
fraction was not eventually paid up by the subscribers, 
and all but about 20,000 was raised in Scotland. 



This result was one of which Scotland may well be 
proud ; the more so as it was accomplished at a time 
when, irrespective of the direct consequences of the 
disaster which had occasioned it, the nation was sadly 
straitened by dull trade, bad harvests, and lessened 

The great question which was evolved, as the 
main economic principle, from the experience of the 
crisis, was the advisableness of continuing the system 
of unlimited liability of shareholders in banks. While 
other business establishments had, as a rule, availed 
themselves of the provisions of the Companies Acts 
permitting limitation of liability, the Scottish banks, 
like most of the larger English banks, had not thought 
it expedient to do so. Those which had not been 
specially incorporated were registered under the Acts 
as unlimited companies. The fact of any of the 
banks being in the enjoyment of a limitation of 
liability was questioned by many writers; but, after 
a fierce discussion, this argument came to nothing. 
It was evident to candid minds that the doctrine 
of limitation of liability by virtue of incorporation 
under special Acts of Parliament or Koyal Charters 
was as old as the law of the land. In point of fact, 
the raising of the question was the result of the 
conflict of interests between the unlimited banks and 
the three old chartered banks, and not the discovery 
of any legal principle which had been overlooked by 
lawyers and statesmen for hundreds of years. 

An exception should be made, however, in the 
case of one writer among those who doubted the 
sufficiency of the charters to cover liability of the 


stockholders of the banks in question. Mr. William 
Mitchell, 1 waiving the untenable position of those 
who doubted that Acts of Parliament and Crown 
Charters conferred limitation unless the contrary was 
stated, founded his argument on special provisions in 
the constitutions of the banks themselves, whereby 
powers were conferred on the banks to make calls on 
their proprietors to a limited extent. It was shown, 
however, by the other side, that these provisions were 
of a purely optional character, had been inserted for 
a specific purpose, and afterwards dropped. But, 
even admitting that these powers are still available, 
the fact of their insertion is an argument in favour 
of the doctrine of limitation by incorporation. The 
proportions callable are, moreover, distinctly specified, 
and small in amount. 

There was a general cry for legislation, but great 
difference of opinion existed as to what form it should 
take. Early in January 1879, Mr. John M'Laren, 
M.P. (now Lord M'Laren), introduced a bill providing 
for the auditing of the books and accounts of the 
banks in Scotland, but it was talked out. Later in 
the session, the Government took up the question on 
a broader basis, and introduced a bill, which, after 
great modifications, became the " Companies Act, 
1879." It was not a measure of which its framers 
had much reason to be proud, but it had the effect 
of removing all legal difficulties which seemed to 
stand in the way of the adoption by some of the 
banks of the principle of limited liability. It also 
established a new system of reserve liability. The 

Our ScolchlBanks, Edinburgh, 1879, p. 84, et seq. 


leading London banks at once adopted its provisions, 
and their example was largely followed by other 
English banks. 

The Scottish banks, however, refrained from recog- 
nising it as suitable for their needs. The three old 
banks held that it had no applicability to them, and 
the unlimited banks were fearful of appending the 
depreciatory word "limited" to their names. Again 
and again they were attacked in the public press for 
their hesitation. In letters to newspapers the old 
banks were abused for harbouring every species of 
evil spirit which words could define or imagination 
depict, as applicable to business establishments, and 
the other banks were taunted with weakness and 
cowardice. The criticism of responsible editors was, 
of course, more dignified, but generally not less 
adverse. But the banks would take no hurried action. 

At last, however, the three old banks made a 
movement which was a surprise to every one. In 
November 1880 they individually gave notice of 
application to Parliament for power to increase their 
capitals, alter their existing capitals, and provide a 
large margin of responsibility of stockholders as 
additional security to creditors. This resolution met 
with little or no opposition from the proprietors of 
the banks, and the directors' proposals were formally 
confirmed by them in each case. In the public press, 
however, the new movement was not so favourably 
received, and in several cases it was denounced with 
more severity than accuracy of criticism ; indeed, a 
large amount of ignorance was manifested regarding 
the matter. The bills were duly introduced, but met 


with considerable opposition in Parliament. The 
Government expressed objection to proceeding in such 
matters by private legislation, but intimated their 
willingness to introduce a public measure, giving the 
powers asked, provided the banks would agree to 
certain conditions, including the adoption of the 
term " limited " as part of their titles. 

In a few very able letters addressed to the 
Treasury, the banks showed the impossibility of 
their agreeing to the views of the Government ; and 
in April 1881 they finally closed the negotiations, 
and intimated that they would not proceed with 
their bills. This conclusion to the movement was 
a very happy one for the three old banks. The 
alterations proposed would have spoilt their constitu- 
tions, and, as experience has since shown, were not 
necessary for maintaining public confidence. The 
action of the banks, however, had a good effect in 
showing that they were sincerely anxious to study 
public sentiment in the matter of providing enlarged 
security for their liabilities. There can be little 
doubt that, in their correspondence with the Treasury, 
they greatly strengthened their position in the public 
view, and swept away the ignorant criticism to which 
they had been subjected in the public press. 

Shortly after the abandonment of the scheme of 
the old banks, the unlimited banks took into favour- 
able consideration the propriety of adopting the 
provisions of the Act of 1879. The result was a 
mutual resolution to become limited, on the basis 
of having subscribed capitals five times as large as 
their existing paid-up capitals. In the case of the 


National Bank, no alteration of capital was necessaiy, 
as it stood at the required proportion ; but each of 
the other banks had to enlarge its subscribed capital. 
As there was no issue of new stock, as had generally 
been made by the English banks adopting the Act, 
there was no opportunity of immediate pecuniary 
benefit to the shareholders. But general satisfac- 
tion was felt that limitation of liability had been 
accomplished, and it does not appear that this 
action was followed by any prejudicial effect to 
their business. 

Another question evolved, or rather brought 
prominently forward, by the disaster was the 
propriety of the appointment of neutral auditors 
to report on the statements of accounts issued by 
the banks. Hitherto most of the banks had con- 
sidered the practice as unsuited to the nature of 
banking business. Even when vehemently (some- 
times not over politely) urged to adopt the system, 
there was a good deal of hesitation. But, as one 
after another gave in to the public demand, within 
three years after the City Bank's failure, all had 
permanently adopted the principle of appointing 
two independent professional accountants to examine 
the accounts and cash balances, and certify as to 
the accuracy of the published annual balance-sheets 
and profit and loss statements. This result was 
certainly in the general interest, even if the security 
thus attained was less absolute than the confidence 
sometimes reposed in professional audits. 



HAVING traced the progress of Scottish banking from its 
modest commencement in 1695, through trials, failures, 
and brilliant successes, to the time of its greatest 
trial, we may appropriately add to our sketch a review 
of the position of the surviving banks, as exhibited 
in their published balance sheets for 1883, and by a 
contrast of that position with the statistical condition 
of banking in Scotland eighteen years previously 
the date at which the banks first generally adopted 
the practice of making a public disclosure of their 
financial state; for, until 1865, almost absolute 
secrecy shrouded their affairs. Except the amount 
of their capitals, and the rates of dividends they 
paid, but little was known regarding them which 
could serve as a guide to intending purchasers of 
bank stock. Customers had to exercise blind faith 
as to the solidity of the establishments they dealt 
with, and economists had to trust pretty much to 
imagination in estimating the position of banking 
and its relations to the progress of the nation. 

Since 1865 we have had an unbroken series of 



yearly statistics, portraying, with nearly complete 
accuracy, the position of the several banking establish- 
ments. The elements vitiating the accuracy of the 
portraiture are not numerous, nor do they materially 
affect the general result. The denouement of the 
City of Glasgow Bank showed that its official reports 
were not worthy of implicit belief ; but it is impossible 
to dispense with them. Another result of the same 
catastrophe was the ascertainment of the fact that 
the actual capital devoted to banking had not been 
so great as had been supposed, many of the banks 
having held large portions of their capitals in their 
own names. Stock so held, while nominally still in 
existence, and capable of being transferred without 
formal re-creation, was practically non-existent, as 
it in no way exercised any power, or was capable 
of meeting any responsibility. 1 These holdings having 
now been disposed of, there has really been a greater 
increase in proprietors' funds than the official state- 
ments would lead one to believe. Again, although a 
system of publicity is, in the main, very superior to 
that of secrecy, it has some dangers special to itself. 
There is an increased tendency to what may be called 
" racing/' with the resulting danger of over-exertion, 
the banks vieing with each other, consciously or un- 
consciously, as to the creditableness of their annual 

1 This view of the question is controverted by some bankers, on 
the ground that, the capital having been actually created, taken up 
by subscribers, and not lost by the bank, it must still exist, although 
purchased by the bank. The case of the City of Glasgow Bank, 
however, supplies practical proof that this is a purely technical 
or book-keeping view of the matter. 

BANKING IN 1865 AND 1883 313 

As we have already seen, it was an old habit 
of Scotch bankers to pile up their profits from year 
to year, and make a grand stroke when the accumula- 
tion had reached a considerable point. While this 
practice, to the extent to which it was carried, is 
inconsistent with the interests of proprietors who 
may not hold long enough to participate in the 
distribution, there can be no doubt that it sometimes 
saved the banks from the effects of large losses which 
would otherwise have been difficult to deal with. A 
system of publicity tends to prevent such a course of 
action, and, in order to put on as good an appearance 
as for the time being they are entitled to, the banks 
are apt, from time to time, to lessen the extent of the 
hidden strength which, in times past, had secured 
their steady progress. Thus, the reserved fund shown 
in the balance sheet drafts on which have always 
a serious effect in public estimation- tends to become 
the only source from which extraordinary losses can 
be met. And such losses no amount of prudence and 
foresight can avert they can only provide for them. 
Competing openly in the eyes of the public, each 
bank, urged on by its shareholders, seeks to pay as 
high a dividend as its profits will allow. When 
reverses come, a sharp reduction follows, producing 
unreasonable disappointment on the part of investors, 
who seem to think they should be able both to eat 
their cake and have it. Of course, the main point 
is that provision should be made for extraordinary 
reverses of fortune, and, if this be done to a sufficient 
extent by public additions to reserve funds, the result 
may be the same in the long run ; but the system of 


hidden reserves has a steadying effect on the progress 
of an establishment. 

The progress during the eighteen years which elapsed 
between the points of comparison is marvellous, and 
much beyond the ratio of the increase in population. 
The population of Scotland in 1865 was probably about 
3,074,000, and an official estimate for 1883 places it 
at 3,825,744. The increase would thus be 751,744, 
or nearly 24^ per cent. But the deposits held by the 
banks rose 45 per cent during the same period ; indeed 
they had reached that point much earlier viz., in 
187 7 although they subsequently fell, as a result of 
the crisis of 1878. It is probable that the improve- 
ment thus shown is actually representative of a much 
greater advance of the nation in material prosperity, 
for the competition of investment companies of all 
kinds has, in an intensified degree, tended to lessen the 
natural inflow of deposits. But, without reference to 
such matters, it is a striking fact that while, in 1865, 
the twelve banks then existing held deposit money 
equal to 18: 12s. per head of the population, the 
ten banks existing in 1883 held deposits equal to 
21 : 14 : 1 per head of the population. 

The aggregate liabilities of the banks have increased 
in a slightly lower proportion than the deposits. This 
is owing to the comparatively small increase in the 
circulation of notes, and to a small decrease in the 
amount of paid-up capital. The reduction of capital 
is due to the absorption of the Central Bank and the 
failure of the City of Glasgow Bank. If allowance be 
made, however, for the portions of capital held by the 
banks in their own hands, and subsequently issued to 


the public, as already referred to, it is probable that 
there has been no actual decrease in the total capitals. 
The amount of circulation given by the reports of the 
banks is not reliable as a basis of calculation, as the 
individual amounts are merely those of the particular 
days on which the balances were struck. The average 
yearly issues showed an increase of 34 per cent. 
Grouping the banks for comparison, as Edinburgh, 
Glasgow, and country, according to the location of their 
head offices, the distribution of the total liabilities was, 
in 1865 Edinburgh, 62 per cent; Glasgow, 30 per 
cent; country, 8 per cent. By 1883 the first group 
seems to have gained at the expense of both the others, 
for the proportions in 1883 were Edinburgh, *70 per 
cent; Glasgow, 23 per cent; country, 7 per cent. 
The failure of the City of Glasgow Bank was, doubtless, 
the cause of this change, which was, indeed, natural, 
as it could not be expected that two Glasgow and 
three provincial banks would secure as much of the 
lapsed bank's business as the five large Edinburgh 

A striking feature of the increase in liabilities is 
supplied by the acceptances. (The drafts current, 
although conjoined in the tables with the acceptances, 
as they were not usually separated in the earlier reports, 
do not materially affect this comparison.) The increase 
in this department of banking was much more marked 
than that of any other, amounting to 85 per cent. 
It would seem, however, that this is due mainly to 
that exceptionally good department of acceptance 
business supplied by the colonial banks drawing on 
London, and not so much to mercantile acceptances. 


The acceptances of some banks actually decreased in 

While the public liabilities of the banks were thus 
extended, the banks did much towards supporting the 
proportion of proprietors' funds to them. Although, 
as we have seen, there was a decrease to the extent 
of 4 per cent in the amount of total capital, owing to 
the withdrawal of two banks, the amount added to 
reserved funds was no less than 91 per cent, or twice 
the proportion of increase in deposits. But the 
relative proportion of the proprietors' funds to public 
liabilities was not quite so great as in 1865, the pro- 
portions being 19 per cent in the earlier year against 
16 per cent in 1883. But, if recent issues of stock 
be allowed for, it is probable that that apparent falling 
off is deceptive. 

Turning now to the assets of the banks, some 
interesting features are manifested. The banking 
advances, which might naturally have been expected 
to increase in somewhat similar ratio with the deposits, 
have actually advanced at not very much more than 
half the rate. This would seem to indicate that the 
demand for banking accommodation had not progressed 
to the same extent as the increase in wealth of the 
nation. There may have been a determinate policy 
on the part of the banks to strengthen the banking 
reserves, but it is not probable that they desired so 
large an increase as had actually taken place viz. 
80 per cent. The outstanding expenditure on bank 
buildings also shows a large increase. As there were 
218 more bank offices than existed in 1865, a con- 
siderable increase is natural. But the banks studied 


appearances as well ; for, while the average cost of 
the buildings was formerly about 1600, the later 
amount is 1943. 

Considering the great extension of the banking 
business which had taken place, a large increase in 
net profits might have been expected. But, on the 
contrary, the improvement was very small. The 
ten existing banks declared, in 1883, profits only 
3 per cent in excess of those declared by the twelve 
banks carrying on business in 1865. This comparison 
is, of course, quite fair, as the Central Bank and City 
Bank businesses are enjoyed by the surviving banks. 
It is thus evident that banking in Scotland was not, 
in 1883, nearly so profitable as it was eighteen years 
previously. To a large extent this is due, doubtless, to 
the smaller proportion of funds employed in banking 
advances, the reserve securities not yielding so high a 
return. But other causes probably contribute to the 
result. Perhaps allowance should be made for the fact 
that 1865 was a year of high pressure in commercial 
activity, the price of money ruling high during the 
greater portion of it, while 1883 was mainly one of 
low rates. But this will not entirely account for 
the disproportion of profits. The average rates of 
dividend and prices of stock are in accordance with 
the rate of increase in profits. 



BETWEEN the close of 18T8 and the crisis of 1890, 
the public history of the nation records many important 
incidents, but few of outstanding magnitude. With 
quite a crop of small wars, and continuous Boer and 
Irish troubles, the country crept along ever without 
the moral courage to pluck safety from the nettle 
danger. Nations seem, like individuals, to have alter- 
nating periods of nerve experiences. At any rate, 
an imperialistic-ascendency condition ended with the 
Berlin settlement of 1878, securing "peace with 
honour " ; and thereafter set in an opportunist spirit 
which had its manifestations in the Majuba capitula- 
tion treaty, tinkered Boer conventions, the sacrifice 
of General Gordon, dangerous vacillation in Irish 
policy eventuating in the almost fatal Home Kule 
weakness ; until, tired of perpetually yielding to 
everybody only to be bothered for something more, 
the nation closed its teeth. 

The twelve years which have elapsed since the 
crisis of 1890 have been full of the makings of history. 
The great battle for the maintenance of the Union 



the most momentous, probably, of the past century 
has been fought and won ; laissez faire policy in 
South Africa, the first overt act of which had been 
the recall of Sir Bartle Frere on 1st July 1880, was 
followed by both parties in a weak-kneed manner, until, 
nineteen years thereafter, the Boers, taught that pres- 
sure only was necessary to obtain concessions from 
the British, launched their insolent ultimatum, and 
started to sweep the rooineks into the sea. Then the 
nation paid in blood and treasure for the false peace 
it had indulged in. The economic error had been 
dreadful, but, probably, under psychological conditions 
it was inevitable. At the same time, the results of 
the costly remedy which the nation calmly, and great- 
mindedly, unhesitatingly resorted to probably formed 
an experience necessary for the wellbeing of the body 
politic, and were eminently beneficial to the higher 
life and aspirations of the race. And the units of 
the Empire were welded together as only such titanic 
force could effect. 

Notwithstanding widespread agricultural depres- 
sion, and Irish and anarchist plots, the domestic state 
of the nation was fairly good, if not so prosperous as 
it had sometimes been. There was much complaint 
of bad trade until comparatively recent years, but the 
bulk of the people seem to have thriven on the low 
prices ruling for commodities. Strikes, however, were 
a pronounced feature, both from their number and 
their magnitude ; but, although they entailed losses 
and privations out of proportion to the results obtained 
by either party, they tended to teach labour that 
it was not invincible, and to adjust the relation- 


ships to capital. As the century drew towards its 
close there was a continuous improvement in the state 
of the nation, until 1896 could be styled " a wonderful 
year of prosperity." That, however, was the zenith, 
since when wars and heavy taxation have weighed on 
the weary citizens, with the close of the Victorian era. 

Arts and sciences progressed if they did not achieve 
brilliant results; and industry produced the Severn 
Tunnel, the second Tay Bridge, the stupendous Forth 
Bridge, and the Manchester Ship Canal, all works 
of the first rank in engineering. In fiscal matters, 
Mr. Goschen's consols conversion scheme, whereby a 
large saving of interest payable on the national debt 
was secured, was perhaps the only outstanding favour- 
able incident ; while the large issues of war stock and 
consols in connection with the Boer War are con- 
spicuous on the other hand. But revenue collection 
experience, and the statistics of foreign trade (apart 
from prices), show fairly healthy features; and, all 
things considered, the condition of the people was 
better than similarly disturbing influences produced 
in former times, evidencing an increase of inherent 

The crisis of 1890 is associated mainly with the 
failure, and liquidation under exceptional circumstances, 
of the firm of Baring Brothers & Co., by the Bank of 
England, supported by the leading banks and bankers 
of the kingdom. It is an instance of a suppressed 
crisis, the results manifesting themselves in a long 
continuance of unfavourable conditions in business. 
The Scottish banks were largely interested in this 
liquidation, and supported the action of the Bank of 

CRISES OF 1890 AND CIRCA 1901 321 

England : the seven banks in Edinburgh and Glasgow 
subscribed 300,000 each to the guarantee fund. 
Again, the crisis which might have been expected 
about the year 1901 appears to have been a disguised 
one. The exceptional circumstances of the war in 
South Africa may have acted as a counter-irritant, 
dispersing the ordinary course of events. There have, 
however, been large liquidations which may well 
represent the wreckage of a joint-stock crisis. But 
it may be that the crisis is not passed, and that we 
have still to encounter the blast of the tempest. 

The history of banking in Scotland during the 
last eighteen years may be epitomised by a paraphrase 
Happy is that banking system that hath no annals. 
While it cannot be absolutely affirmed that all the 
companies have in all respects improved their posi- 
tions, there is but slight exception to the rule. In 
the main there has been extraordinary healthy growth 
during the period, with an absence of unfavourable 
circumstances of a serious character. And there is 
an absence of sensational circumstances which, while 
giving interest and colour to a narrative, indicate 
trouble and disease among the dramatis personce. 

The period treated of in last chapter, and that 
now falling to be dealt with, are of nearly similar 
duration, viz., about eighteen to nineteen years. In 
both there is shown a great and healthy growth ; but 
the latter period does not show increases so great, 
either in bulk or by percentage, as the former period. 
The only departments in which the cash increase is 
greater are those of the banking reserves and capital 
paid up ; and it is only in the case of the note circulation 



that the percentage increase now is greater than 
formerly. Perhaps the same rates of expansion were 
hardly to be expected, considering the great increase 
of financial business competing more or less with the 
banks. On the other hand, when we turn from the 
balance-sheets to the profit and loss statements, it is 
gratifying to find that the remunerativeness of the 
business has considerably improved. 

Having in a previous chapter treated of the 
progress of banking in Scotland from 1865 to 1883, 
we propose now to examine the changes which have 
occurred during the almost similar period which has 
elapsed since the latter date to the present time. 1 
So far as amounts go, the changes in the two periods 
bear some striking resemblances. Thus the total 
assets have increased by 30 millions, as against rather 
more than 31^- millions formerly. The reserved 
funds, 2j against 2f millions. Deposits, 24^ com- 
pared with 25 J millions. In other words, the sum 
of increases in these important items appears to have 
averaged much the same per annum during the two 
periods. But, of course, the percentage increases have 
been much less than formerly. On the other hand, 
other items show a widely different experience. Thus 
there has been no such effort during the last eighteen 
as in the former eighteen years towards strengthening 
the capital accounts. The solitary instance of exten- 
sion of capital is supplied by the British Linen 
Company, which have issued 250,000 of new stock. 

1 See Appendix B. The present review is not in as full detail as 
the previous one, as the writer has elaborated this matter recently 
in his Scottish Banking during the Period of Published Accounts, 

SCOTTISH BANKING 1883 AND 1901-1902 323 

Again, the amount of acceptances and drafts has 
hardly moved, the half million increase shown being 
possibly accidental. The note circulation has, how- 
ever, expanded to a marvellous extent, being now two 
millions, or 36 per cent, greater than in 1883, against 
an increase of less than 1 million, or 18 per cent, in 
the former period. This great advance has, of course, 
been solely an effort to meet the public convenience, 
and has been a pecuniary loss to the banks owing to 
the increased expense of maintaining the issues with- 
out any counterbalancing profit. Advocates of the 
abolition of note -issues may console themselves with 
a calculation of the saving to the State of the wear and 
tear of metallic currency which would have accrued 
on this great increase of the circulating medium. 

Among the asset groups, the experience of the two 
periods has been widely different. There has been a 
trifling increase of 5^ millions, or 8 per cent, in the 
banking advances, as compared with 13 J millions, or 
25 per cent, formerly. The amount of expenditure 
outstanding under the heading of bank buildings 
shows a very moderate increase less than half of the 
increase of the preceding period. To some extent this 
result may be due to more generous appropriation of 
profits to writing down the cost of buildings. As 
there has been so small an outlet for the increasing 
resources of the banks, the banking reserves have risen 
24 millions, or 63 per cent, contrasted with 17 
millions, or 80 per cent. They now show the extra- 
ordinarily high proportion of 45 per cent to the total 
liabilities, and are equal to more than one half of the 
liabilities to the public. 


There has been a continuous expansion in the 
matter of branches ; but the rate of increase has only 
been about two-thirds of what it was in the former 
period. The total number of offices is nearly 1100, 
of which thirteen are in England. This gives a pro- 
portion of one bank office to every 4155 of the 
population of Scotland, a very liberal supply of 
banking facilities. All the banks have participated 
in this activity in branch extension ; but the most 
progressive have been the Commercial, Clydesdale, 
British Linen, and Union. While this policy has 
been accompanied by increased profits, it may be 
doubted if it has contributed in any marked degree 
to that result. The National Bank, which shows the 
second largest increase of profits, are hardly over 
average in the matter of branch extension. It is more 
probable that the improvement in profits is mainly 
due to the large increase of public liabilities, the 
abolition of payment of interest on current accounts, 
and other lessening of burdens on revenue. 

The question of special banks for the working 
classes was considerably discussed in this period. 
The idea was borrowed from the continent, where 
people's banks have been in operation for long, and 
especially with reference to those of the Schulze- 
Delitzsch type, which were supposed to be of special 
efficiency. As a result the People's Bank, Limited, 
was established in Edinburgh in January 1889. 
According to a statement made at the time " the 
object of the bank is to furnish banking facilities to 
those classes whose money transactions are at present 
generally considered too small to require such services, 


and who, from this cause, too often fall into usurious 
hands. It is registered under the Industrial and 
Provident Societies Act, 1876. It will conduct, in 
the main, the business of an ordinary Scottish bank, 
though, of course, it does not possess the power to 
issue its own notes. . . . The accounts of depositors 
may either be current or deposit accounts. On the 
former 1 per cent of interest will be allowed, 
calculated on the minimum monthly balances, and 
on the latter 2^ per cent. . . . Loans will be granted, 
but each borrower must be a shareholder to the extent 
of at least one share. Advances will be made on 
such securities as stocks, ground -rents, feus, leases, 
life policies, building and co-operative society shares, 
house property and land ; and credits upon cash- 
accounts current will be granted when the security 
is considered good, and approved bills will be dis- 
counted." The bank appears to have carried on a 
modest but successful business. The latest report 
shows a holding of deposits to the amount of 33,498 
and an accumulated reserve fund of 1000 ; with 
advances to the amount of 26,206. It pays a 
dividend of 5 per cent per annum. 

Shortly afterwards a similar institution was 
organised in Glasgow which has grown more rapidly 
than its earlier compeer. It has seven branches, 
68,748 of deposits, and a reserve fund of 2500, 
How far it has adhered, however, to its original field 
of operations, seems uncertain. It changed its name 
to the Mercantile Bank of Scotland, Limited ; and its 
latest balance-sheet shows that the bulk of its funds 
are invested ; less than 22^ per cent being advances to 


customers. The position indicates that the company 
is carefully conducted. It pays a dividend of 4 
per cent. 

It is still too early to decide whether the system 
of people's banks is likely to be permanent. Probably 
the result will depend largely on the amount of care 
bestowed on the business, which, it may be presumed, 
will involve considerable risks accompanied by narrow 
margins of profit. There will be a tendency to enlarge 
the field of operations. 

There are still a few events which it will be proper 
to refer to ere closing our narrative. Owing to the 
continuance of low profit rates, the banks made 
important alterations in their deposit interest arrange- 
ments. On 1st July 188 5, the initial step was taken 
by the discontinuance of the daily balance rate, all 
interest allowed on current accounts being thereafter 
calculated on the minimum monthly balances, that 
rate being at the same time reduced from Ij to 1 
per cent. The old minimum of 2 per cent on deposit 
receipts was also given up, and the rate reduced to 
Ij per cent. As an offset, some concessions were 
made in regard to discount terms. These arrange- 
ments held until 1st October 1892, when the con- 
tinued pressure of low rates necessitated a further 
change. The old established system of allowing 
interest on current account creditor balances was 
entirely abolished, and the deposit receipt minimum 
rate was reduced to 1 per cent. On the other hand, 
the overdraft rate was reduced by -J per cent. 

In November 1888 a forgery of a new issue of 1 
notes by the Bank of Scotland was discovered. It 


seemed to be the work of a skilled engraver aided by 
an expert lithographer. Even the watermark was 
ingeniously imitated by a special process. About a 
dozen notes were put in circulation. This bank 
suffered more seriously, on 16th February 1891, by 
the robbery from a London branch clerk of his remit- 
tance bag, containing 11,580 in bank notes, while 
he was at the counter of one of the other city banks. 
The British Linen Company made, in 1892, an issue 
of new stock to the extent of 250,000 at 300 per 
cent. This has enabled them to secure the place of 
honour in regard to amount of proprietors' funds. 
Although matters of but little importance, it may be 
right to record that, in 1883, an honest but mistaken 
venture called the Money Order Bank, designed to 
conduct a so-called improvement on the Post Office 
remittance system, was started in Edinburgh ; and, in 
1894, an English concern calling itself the London 
and Scottish Banking and Discount Company, Limited, 
opened an office in Edinburgh. In both cases the 
inevitable ending was not long deferred, and the close 
of the latter's career was ignominious. 




THE present sketch of banking in Scotland may be 
fitly concluded with a short consideration of some of 
the leading features of the system which has made 
Scottish banking conspicuous among the banking 
systems of the world. Perhaps the chief of these is 
its suitability to the circumstances of the country and 
the genius of the nation. This may almost seem a 
truism, in as far as the system was of almost entirely 
natural growth. But this is in itself a circumstance 
quite unusual in other countries. Elsewhere the 
State has been the motive power in calling banking 
into existence, has moulded its character, and has 
regulated its action all along. In Scotland the State 
took little interest in the matter beyond sanctioning 
the formation of a few of the earliest establishments. 
The consequence was a naturally -evolved system, 
moulded by the requirements of the people. 

The nation was extremely poor, with a debased 
and insufficient currency. Even the small amount 
of capital at first put into the business was a great 
boon to the people, but it was the note-issues, founded 



on the credit of the banks, that actually gave the 
impulse to trade. The small amount of actual capital 
available would, by itself, have given only temporary 
assistance ; but, by means of the note-issues, the banks 
were enabled to extend their advances in proportion 
to the wants of the people. This, it may be thought, 
would lead to excess of issues ; but it does not appear 
that such a condition was ever experienced in Scot- 
land. It is doubtful, indeed, if it be actually possible, 
where notes are not legal tender and are payable on 
demand. The banks had no desire and little tempta- 
tion to grant advances which they did not believe 
to be good, as there was a great field of legitimate 
requirements before them. The notes so issued would 
at first not come back to the banks, except as worn, 
for there was a great vacuum of currency to be filled. 
Thus the profitableness and safety of early banking 
in Scotland are fully accounted for. The note -issues 
fulfilled the functions of capital, the absence of which 
was crippling the nation, and did so in a cheap and 
convenient form. 

As the nation advanced in wealth, the note-issues 
began to lose somewhat of their indispensable char- 
acter. A wealthy country can afford to indulge in 
a metallic currency. But, even when they might 
have discarded the notes, the Scottish people con- 
tinued to use them as much as ever. And it was 
well that they did so ; for, as the original function 
of the notes was losing somewhat of its force, a new 
necessity for the issues was arising. The banks were 
extending their branches more and more into the 
rural districts an operation which could only be 


performed through the aid of the note-issues ; for it 
it is only in comparatively wealthy centres that a 
bank office can be successfully conducted on a metallic 
basis. From a public point of view this is at present 
the great argument in favour of the retention by the 
banks of their right of issue ; and it is a very power- 
ful one. The cost to Scotland of the abolition of 
these issues would be a more expensive currency, 
lessened banking facilities, and probably, heavier 
banking charges. If the note -issues had proved 
defective, this would not, perhaps, be too heavy a 
price to pay for security ; but it seems too much to 
pay for the destruction of an institution which has 
been a vital instrument in producing the prosperity 
of the nation, which has never been productive of 
harm, which has always been thoroughly efficient, and 
which at the present time is a convenience to millions 
of people. 

The cash credit system is another important feature 
of Scottish banking ; but it is secondary to the note- 
issues. Cash credit bonds extended the range of good 
advances ; but advances of any kind would have been 
impossible, except to a small extent, without the note- 
issues. But, as a part of the system, the cash credit 
was not only ingenious, but was a potent factor in 
the commercial progress of the nation. It secured 
the debt on which the notes were issued, and it 
enabled clever and industrious men, who had no 
capital of their own, to supply the requirements of 
the public, and to lay the foundations of individual 
and national wealth. 

The deposit business was of slower growth than 


the departments we have referred to, for the simple 
reason that poor people have no money to deposit. 
But the Scotch have always been a saving people, 
and, when once they began to have a little more cash 
than was necessary for current requirements, they 
naturally availed themselves of the opportunity 
afforded by the banks of making it profitable to 
themselves and useful to others. As the banks have 
always given liberal facilities in this department, the 
spirit of saving was much encouraged, to the general 

The widespread character of Scottish banking has 
been a great source of stability to it. In other countries 
the general practice is that banks confine themselves 
to particular localities, or even to particular depart- 
ments of commerce. Under such a system risks are 
not sufficiently spread, and a bank stands or falls 
according to the fortunes of a small clientelle. In 
Scotland, also, this system was general for long, and 
it is only in comparatively recent times that it has 
entirely disappeared. But with the gradual con- 
solidation, which is so marked a feature of its history, 
Scottish banking sought more and more a national 
basis. This it has now attained to, for there are 
no banks confining their operations within very 
limited areas. The provincial banks may be deemed 
a partial exception, but even they are fairly wide- 
spread. The banks have thus a strength and solidity 
such as is not general in other countries. In the 
United States, for instance, so-called national banks 
are to be found in every town, but their nationality 
consists in nothing more than the securing of their 


note -issues by a deposit of Government bonds. 
Every month a long list of new banks appears, and 
along with it a similar list of failures. These banks 
seem to be mere associations of small capitalists 
establishing themselves as single offices a system 
of essential instability. Even in England the number 
of small local banks is great, although much lessened 
by the numerous amalgamations which have taken place 
during recent years. 

But, if Scottish banking has now secured what, 
as regards its principles, may be considered an ideal 
condition, it has not done so without suffering in 
many severe struggles. The Legislature wisely left 
it to itself or rather the indifference of the Govern- 
ment allowed it to fight for its own existence ; but, 
if it suffered nothing from the attentions of the 
State, it had, on the other hand, to devise its own 
principles and form its own practice operations of 
great difficulty and danger. It had to meet crises 
without proper knowledge of how they should be 
met, beyond that supplied by mother wit. In 
consequence, there were many stumbles and many 
falls. But a sound bank, in the early days, was 
hardly any the worse for stopping payment. At 
one time, as we have seen, all the banks stopped 
payment, the only result being a temporary excite- 
ment on the part of the commonalty, arising from the 
inconvenience of not getting change for 1 notes. 
During another crisis, almost all the Edinburgh 
private banks were swept away ; but those who 
remained gained in credit and in experience. These 
were the blows that moulded the system, and it is 


surprising that the total loss sustained by creditors 
from the failure of banks in Scotland is quite 

But, it may be said, the Scottish banks have, 
within the period of what may fairly be considered 
the matured system, supplied two instances of gross 
failure, the later of which is probably the most 
disgraceful which any thoroughly consolidated country 
has experienced. It must be admitted that this is 
so, and that the three great banking disasters of 
Scotland the Ayr Bank, the Western Bank, and 
the City of Glasgow Bank show an appalling 
increase in ratio of calamity. And it is not sufficient 
answer to say that these events were the result of 
departure from the general system. They certainly 
were so nay, it was the ignoring of the principles 
and practice which experience had established as 
the general rule that produced the ruin of these 
banks. But they cannot be excluded from the 
general estimate of Scottish banking. Indeed, it 
may be said that in no other country than Scotland 
could such a case as that of the City of Glasgow 
Bank have happened. The excellence of the banking 
system had commended itself to the Scottish public 
in a manner not elsewhere experienced in regard to 
private companies, and it was this blind trust that 
rendered the disaster possible. The only answer to 
the accusation is, that men fail in their strongest 
point. The lessons to be derived from these 
experiences are, however, of more moment than 
accounting for them. These have been preached, 
rightly and wrongly, to such an extent, and acted 


on so wholesomely, that it only requires vigilant 
interest on the part of proprietors, depositors, and 
the public, to avert such events in the future. And 
in regard to such vigilance, nothing is of more 
importance than insisting on the continued observance 
of the principles and practice which have proved so 
successful, and resisting new departures such as, under 
the specious assertion of a necessity for extended 
facilities, have three times brought grievous disaster 
on the nation. 



EDINBURGH, 13th May 1902. 

Royal Bank of Scotland, 

Hope Street. 

Dear Mr. Kerr I have only now been able to look into the 
interesting questions as to the dates, etc., of the earliest bank 
notes in Scotland raised in your letter of 9th ultimo. 

In the first place, I would like to mention that, in the 
course of my examination of the records of the Bank, I have 
quite failed to find any confirmation of the particular statement 
made by the writer of the Historical Account of the Bank of 
Scotland, to which you refer, viz. that there was an issue of 
20s. notes in 1699. 

The facts about the issue of 20s. notes appear to be these : 
Early in 1699 an overture to print 20s. notes was brought 
before the Directors of the Bank, and after some discussion, it 
was referred to a General Meeting of the Adventurers (Pro- 
prietors), which was held on 24th March 1699. At this 
meeting the matter was put to the vote, but, the negatives 
preponderating, it was set aside. Next year (1700) a Committee 
of Directors met to consider certain proposals made by the 
founder of the Bank (John Holland, the London Merchant), 
" concerning the supplying the want of notes for sums below 5." 
Mr. Holland suggested two ways, viz. (1) by using brass coins, 



and (2) by using tallies of timber. After careful deliberation 
the Committee, while unanimously agreed as to the advantages 
which would accrue from an issue of small notes, set aside Mr. 
Holland's proposals on the ground that they were " inconsistent 
with the laws of the Kingdom, and very impracticable both to 
the Bank and the Nation." 

The question of the issue of 1 notes does not appear to 
have come up again until the year 1704, when a "new overture 
for making twenty-shilling notes " was brought before the Bank. 
The matter was discussed at several meetings of the Directors, 
and finally referred to a General Meeting of the Adventurers, 
which was held on 10th March 1704. At this meeting a 
resolution was passed that "twenty -shilling sterling notes" should 
be made and "be ready to go abroad as soon as possible" ; and 
the necessary steps were accordingly taken to have this done. 
In a succeeding minute these twenty-shilling notes are referred 
to as " twelve-pound Scots notes." The first entry, therefore, in 
the Bank's ledger for 1 notes appears on 1th April 1704. 
They are entered in the books as 1 sterling. 

With regard to Large Notes, these were issued from the 
time the Bank commenced business in 1696, and were of the 
values of 100, 50, 20, 10, and 5 sterling. In a minute, 
dated 26th February 1700, there is an instruction that "the 
Treasurer and Accomptant at signing the notes subjoin to their 
ordinary subscription the sum of the Bill in Scots Money" 

The fact of the notes being at that early date printed in 
London (under the supervision of the English trustees of the 
Bank resident there) may throw some light on the circumstance 
of so large denominations being issued in sterling. 

I trust I have answered the various queries contained in 
your letter, but, should any point have been overlooked, I will 
be very pleased to endeavour to supply the omission on hearing 
from you. Yours very truly, 

(Signed) J, S. BARBOUR, 





Central Bank of Scotland. 


Dundee Banking Company. 
Dundee New Bank. 

Dundee Commercial Banking Company (No. 1). 
(Business only taken over). 


Paisley Banking Company (Business taken over). 


Caithness Banking Company (Business only taken over). 
Arbroath Banking Company. 


Commercial Banking Company of Aberdeen. 
Perth Union Bank. 


Glasgow Union Banking Company 

Thistle Bank Company. 

Sir Win. Forbes, J. Hunter & Co. 

Paisley Union Bank Company. 
Hunters & Co., Ayr. 

Kilmarnock Banking Company. 
Glasgow and Ship Bank. 

Glasgow Bank Company. 

Ship Bank. 

Banking Company in Aberdeen. 
Perth Banking Company. 

Perth United Company. 



Greenock Union Bank. 
Edinburgh and Glasgow Bank. 
Edinburgh and Leith Bank. 

Southern Bank of Scotland. 
Glasgow Joint Stock Bank. 
Eastern Bank of Scotland. 

Dundee Commercial Bank (No. 2). 



John Macadam & Coy., Ayr. 

Alexander Johnston, Hugh Lawson & Co., Dumfries. 


Thomas Kinnear & Sons. 
Donald Smith & Co. 


Greenock Banking Company. 
Dundee Union Bank. 
Montrose Bank. 
Paisley Commercial Bank. 
Ayrshire Banking Company. 
Glasgow Banking Company (No. 2). 


Bank of Mona. 



BAKKS isaunro UNDER 



ACT or 1845. 






Bank of Scotland 






Royal .... 






British Linen Company 












Perth .... 





Aberdeen . 

















Town and County 


















Western . 












North of Scotland 






Clydesdale . 






Caledonian . 











City of Glasgow . 






Edinburgh & Glasgow 


















Date of Note. 



Bank of Scotland 

1 1 

Feb. 2, 1774 

Man hanged at Edin- 


Dundee . . 
Bank of Scotland 

1 1 

Aug. 1, 1777 
Mar. 1, 1780 

Man and woman arrested 
at Edinburgh. 
Very imperfect. 

Glasgow Merchant 


Feb. 2,1782 

" Coarsely wrote." 


Bank of Scotland 
Paisley .- . 

1 1 

Oct. 3, 1785 

Man transported for four- 
teen years, Dumfries. 
Man hanged at Glasgow. 


Do. . . 
Royal . 

1 1 


Man hanged at Edin- 
Verdict, " Not proven." 


Ship . 



Man hanged (several 
Man transported for life. 


Greenock . 

1 1 

Man transported for seven 
Man hanged at Glasgow. 





Man hanged at Stirling. 


Bank of Scotland 

1 0? 




Royal . 
Ship . . . ' 
Dundee Union 



Death sentence respited 
at Ayr. 
Death sentence on three 
men at Dumfries. 
Discovered in Dundee. 



Issuing Banks. 

Retiring Banks, etc. 








Bank of Scotland. 

City of Glasgow 

Assets Company, Ltd., Edin- 




Dundee Commercial . 


Dundee Union .... 




Edinburgh and Glasgow . 


Edinburgh and Leith 



British Linen Company. 

Sir Wm. Forbes & Co. 




Glasgow and Ship 


Glasgow Joint Stock . 


Glasgow Union 




Greenock Union 


Hunters & Co., Ayr . 


Kilmarnock .... 




British Linen Company. 

Paisley Commercial . 


Paisley Union .... 




Perth Union .... 


Perth United Company 






Thistle, Glasgow 






Aberdeen Bank (No. 1), 72 ; (No. 

2), 92, 131, 255 
Commercial Bank of, 114, 135, 

213, 231 
Town and County Bank, 8, 190 

Acts of Parliament, 1693, 17 ; 
1695, 5, 17, 19, 24; 1708, 
200; 1719, 44; 1765, 89, 
240 ; 1772, 105 ; 1774, 116 ; 
1797, 145 ; 1799, 146 ; 1808 
and 1815, 161 ; 1826, Kng. t 
200, 210 ; 1826, Scot., 220 ; 
1828, 162, 217, 220 ; 1833, 
200, 220; 1835, 162, 217, 
220 ; 1844, 236, 250 ; 1845, 
237-8 ; 1853, 262 ; 1862-80, 
7, 268 ; 1867, 286 ; 1873, 45, 
288 ; 1879, 307 

Agency business, 117, 212 

Alexander, Wm., & Sons, 78, 102, 105 

Allan, Alexander, & Co., 12, 63, 
113, 232, 255 

Allan & Steuart, 114 

Allan, Robert, & Son, v., 113, 213 

Arbroath Bank, 191, 231, 243 

Arbuthnot & Guthrie, 78, 101 

Auditing, 307, 310 

Ayr Bank (No. 1), 95, 303 ; (No. 
2), 114, 133, 189, 230 

Ayrshire Bank, 215, 244 

Banking, English, 4-6, 11, 199, 
206, 219, 233, 274; Irish, 
202, 211, 217, 219, 221, 237 ; 

legislation, 5, 84, 123, 150, 
162, 207, 233, 272, 288, 307-9 ; 
national versus local, 331 ; 
plot, a, 115; private, 13, 57, 
62, 77, 113, 139, 140, 154, 
160, 213, 215, 223 ; reserves, 
216, 224, 241, 251 ; Scottish, 
4-9, 11, 85, 122, 206, 211, 
223, 237, 291, 311, 327, 332 ; 
Scottish, comparisons, ; !865 and 
1883, 311; 1883 and 1901-02, 

Bank of England, 6, 18, 103, 141, 
143, 154, 186, 195, 196, 211, 
219, 233, 240, 250, 251, 257, 
261, 270 
of Ireland, 237 
of Mona, 299 

of Scotland, 8, 17, 24, 41, 44, 51, 
67, 73, 104, 110, 115-6, 118,120, 
139, 143, 150, 154, 158, 160, 
183, 218, 221, 261, 290, 294 

Baring Brothers & Co., 320 

Belch, Robert, 122 

Belsh & Co., 151 

Bertram, Gardner, & Co., 114, 117, 

Branches, 9, 28, 57, 115, 160, 188, 
193, 215, 217, 255, 324 ; cen- 
tral control necessary, 98, 109, 

British Linen Company, 8, 69, 104, 
128, 129, 130, 133, 161, 168, 
255, 334 



Caithness Bank, 153, 198 
Caledonian Bank, 8, 225, 300 
Campbell, Thomson, & Co., 121 
Cash-credit system, 55, 57, 79, 330 
Central Bank of Scotland, 216, 


Chalmers, George, 78 
Charters, Crown, 45, 119, 150, 217, 


City Bank of Glasgow, 217 
City of Glasgow Bank, 228, 256, 

262, 269, 292, 303; failure, 

294 ; investigator's report, 

297 ; lottery scheme, 304 ; 

relief fund, 305 
Clydesdale Bank, 8, 225, 288 
Cochran, Murdoch, & Co., 76 
Coinage, 29, 32, 81, 88, 115, 132, 


Collie, Alex., & Co., 286 
Commercial Bank of Scotland, 8, 

136, 153, 191, 217, 270, 289 
Country Bank, First, 73 
Coutts, John, & Co., 58, 77, 114 
Crises, 1701-4, 29 ; 1761, 79 ; 1772, 

91, 95; 1793,117; 1797,143; 

1810-5,149; 1820, 186; 1825- 

6, 196 ; 1837, 219 ; 1845, 245 ; 

1847-8, 247, 249 ; 1857, 256 ; 

1863, 267 ; 1866, 274, 285 ; 

1867, 285 ; 1875, 286 ; 1878, 

292 ; 1890, 320 ; 1901, 321 
Cumming, Wm., & Sons, 64, 78, 

104, 110, 113, 117 
Cupar Bank, 150 

Darien Company, 15, 26, 28, 43, 


Deposit Receipts, 57, 80, 161 
Deposits, 260, 314, 330 
Douglas, Heron, & Co., 95, 303 
Dumfries Commercial Bank, 151 
Dundee Bank, 82, 91, 117, 120, 

128, 151, 164, 263, 269 
Dundee Commercial Bank (No. 1), 

121, 135, 151 ; (No. 2), 191, 


New Bank, 151 
Union Bank, 136, 152, 153, 231 

Dunlop, Houston, Gemmell & Co., 

Eastern Bank of Scotland, 191, 226, 

231, 232, 269 

East Lothian Bank, 152, 189 
Edinburgh and Glasgow Bank, 226, 


Edinburgh and Leith Bank, 226 
English Banks in Scotland, 187, 

213, 272, 327 

Equivalent Company, 33, 41, 43 
Exchange, 28, 59, 79, 80, 83, 161, 

187, 202, 211 
Companies, 245 
Exchanges, Note, 81, 109, 220 

Fairholme, A. & T., 63, 78, 82 
Falkirk Bank, 121 

Union Bank, 150, 188 
Fife Bank, 150, 198 
Fire Insurance, Early, 44 
Foggo, Samuel, 78 
Forbes, Sir Wm., J. Hunter & Co., 

12, 60, 78, 110, 113-4, 175, 

183, 189, 230 

Fordyce, Malcolm, & Co., 78, 101 
Forgeries, 71, 115, 125, 289, 334, 

Fyffe, John, 78, 114 

Galloway Bank, 152, 189 

Garbet & Co., 102 

Gibson & Hogg, Gibson & Balfour, 

78, 102 
Glasgow Arms Bank, 76, 132, 134, 


Glasgow & Ship Bank, 214, 230 
Glasgow Bank (No. 1), 152, 214 ; 

(No. 2), 229 ; (No. 3), 244 
Banking in, 72, 139, 141, 197, 

228, 244, 273, 325 
Commercial Bank, 152, 189 
Joint Stock Bank, 226, 228 
Merchant Bank, 93, 105, 115 
Koyal Bank, 141 
Union Bank, 12, 215, 230 
Government Stocks, speculation in 
156, 159 



Greenock Bank, 13, 121, 179, 231 
Union Bank, 228, 231 

Herries, Farquhar & Co., 59 
Hogg, Wm., & Son, 78, 93 
Hog or Hogg, Wm. , Junr. , 55, 78 
Holland, John, 26, 335 
Hours of Business, 91, 220 
Hunters & Co., 114, 133, 189, 

Inglis, Borthwick, Gilchrist & Co., 


James, & Co. 213 
Institute of Bankers in Scotland, 


London, 282 

Interest Rates, 57, 72, 80, 117, 156, 
161, 220, 246, 250, 257, 274, 
325, 327 

Johnston, Lawson & Co., 92, 100 
Johnstone, Smith & Co., 78 
Joint-stock enterprise, 15, 194, 218, 
223, 254, 266, 284 

Kilmarnock Bank, 151, 189 
Kinnear, Thos., & Sons, 71, 113, 213 
Kinnears, Smith & Co., 213 

Leeman's Act, 286 
Leith Bank, 121, 232 
Limited liability, 217, 306-10 
Linen trade, 65, 68, 187 
London and Scottish Banking and 
Discount Co., Ltd., 334 

Maberley, John, & Co., 187, 202, 

211, 213 

Macadam, John, & Co., 92, 100 
Malagrowthor, Malachi, 150, 153, 

188, 202 

Mansfield & Co., 62, 104, 110, 113 
Money Order Bank, Ltd., 334 
Montrose Bank, 153, 212 
Murder of a Bank messenger, 169 

National Bank of Scotland, 8, 191, 
217, 229, 243, 275 

North British Bank, 14, 247 
North of Scotland Bank, 8, 216 
Note exchanges, 81, 109, 220, 261 
Note issues, 7, 27, 72, 84, 98, 200, 
201, 203-8, 224, 229, 234, 239, 
259, 271, 329, 335, 343 
Notes, circular, 60 ; fractional, 86, 
145, 211 ; optional, 30, 80, 86 

Overend, Gurney & Co., 274 

Paisley Bank, 121, 134, 214 
Commercial Bank, 227, 231 
Union Bank, 121, 174, 230 

Parliament, Scots, 4 

Paterson, David, 151 
William, 18, 26, 44 

Peel, Sir Robert, 5, 234-42, 250, 
258, 274 

Perth Bank, 255 

Union Bank, 153, 213 
United Company, 92 

People's banks, 324 

Pole, Thornton & Co., 196 

Profits, 34, 42, 70, 93, 118, 124, 
223, 227, 245-7, 317, 324 

Ramsays, Bonars & Co., 13, 118, 

158, 214 

Rebellions, 1715, 33 ; 1745, 66 
Renfrewshire Bank, 136, 150, 232 
Robberies, 164, 169, 173, 179, 212, 


Royal Bank of Scotland, 8, 34, 41, 
45, 51, 67, 73, 104, 110, 116, 
118-9, 124, 128-9, 136, 138-9, 
150, 154, 158, 160, 183, 198, 
217, 244, 255 

Royal Exchange Assurance Cor- 
poration, 35, 44 

Savings Banks, 161 

Scottish Banking Company, Ltd., 13 

Banks in England, 152, 218, 232, 
275, 288, 290 

National Bank, 192 

Union Bank, 191 

Union Commercial Bank, 191 
Scott, Moncrieffe & Ferguson, 78 


Scott, William, 114 

Seton & Houston, Seton, Wallace 

& Co., 78, 139 
Shetland Bank, 188, 232 
Ship Bank, 75, 214 
Shipwreck, 221 
Sinclair, A., & Co., 78, 102 
Smith, Donald & Co., 71, 113, 213 
Southern Bank of Scotland, 227 
Stamp Duties, 147, 161, 262 
Stirling Bank, 114, 121, 198 

Merchant Bank, 121 
Suspension of payment, general, 

143, 146 

Thistle Bank, 81, 128, 213 
Thomson, A., G., & A., 121, 140 

Thomsons & Co., 153 
Town and County Bank, 8, 190 
Trustees, liability of, as shareholders 

Union Bank of Scotland, 8, 152, 

of England and Scotland, 2, 3, 

31, 42 
Usury Laws, 220, 254 

Wardrop, John, & Co. 151, 190 
Watson, J. & R., 81, 212 
Western Bank of Scotland, 216, 

224, 244, 251-6-8, 271, 287, 

Wordie, John, 114 


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T~) ECENT developments, both national and educational, point to a revival 
JC\. of serious interest in Scottish History. This little book is intended 
as an aid in that direction. Its purpose is to provide an outline of the 
history of Scotland as history ; to do in brief compass what has been done 
exhaustively by the historians of many volumes. The writer has confined 
himself to the things that really mattered in building up the kingdom and 
shaping the fortunes of its people. He has sought also to tell the story as 
a whole ; to keep touch with Highlands and Borders as well as with the 
Central Lowlands ; to connect the course of events in Scotland, where 
needful, with the general drift of European history ; and to indicate the 
bearing of the facts on what is characteristic in the national evolution. For 
this purpose full use has been made of the large, and especially the more 
recent, histories ; but the original sources available have also been inde- 
pendently consulted, and every effort made to keep the matter abreast of 
the latest and most assured results of special studies. The aim of the author 
as a whole has been to substitute a clearly written, coherent, and, it is hoped, 
interesting narrative not overburdened with names and dates, for the broken 
succession of "merry tales" and exaggerated episodes to which Scottish 
History on this scale has been reduced, and which has destroyed at once its 
popular interest and its educational value.